##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 30, 2008
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to .
 Commission file number: 000-51348
 ev3 Inc.
  Delaware
    
    32-0138874(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)
 9600 54 th Avenue North, Suite 100
Plymouth, Minnesota 55442
 (763) 398-7000
 þ o
  Large accelerated filer
o
    
    Accelerated filer
þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



ev3 Inc.
FORM 10-Q
For the Quarterly Period Ended March 30, 2008
 TABLE OF CONTENTS
  
 Description
    
    
    
    PagePART I.
    
    FINANCIAL INFORMATIONITEM 1.
    
    Financial StatementsConsolidated Balance Sheets as of March 30, 2008 (unaudited) and December 31, 2007
    
    
    1Consolidated Statements of Operations for the three months ended March 30, 2008
and April 1, 2007 (unaudited)
    
    
    2Consolidated Statements of Cash Flows for the three months ended March 30, 2008
and April 1, 2007 (unaudited)
    
    
    3Notes to the Consolidated Financial Statements
    
    
    4ITEM 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15ITEM 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    26ITEM 4.
    
    Controls and Procedures
    
    
    27PART II.
    
    OTHER INFORMATIONITEM 1.
    
    Legal Proceedings
    
    
    28ITEM 1A.
    
    Risk Factors
    
    
    28ITEM 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    29ITEM 3.
    
    Defaults Upon Senior Securities
    
    
    29ITEM 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    29ITEM 5.
    
    Other Information
    
    
    29ITEM 6.
    
    Exhibits
    
    
    30SIGNATURE PAGE
    
    
    31Exhibit Index
    
    
    32302 Certification of Chief Executive Officer302 Certification of Chief Financial Officer906 Certification of Chief Executive Officer906 Certification of Chief Financial Officer
  
 This report contains not only historical information, but also forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created by those
sections. We refer you to the information under the heading Part I. Item 2. Managements
Discussion and Analysis of Financial Condition and Results of OperationsForward-Looking
Statements.
 In this report, references to ev3, the company, we, our or us, in historical information
in this report, unless the context otherwise requires, refer to ev3 Inc. and its subsidiaries.
 All trademarks or trade names referred to in this report are the property of their respective
owners.




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM I. FINANCIAL STATEMENTS
 ev3 Inc.
 
 CONSOLIDATED BALANCE SHEETS
 (Dollars in thousands, except per share amounts)
 March 30,
    
    
    December 31,2008
    
    
    2007(unaudited)AssetsCurrent assetsCash and cash equivalents
    
    $
    49,300
    
    
    $
    81,060Short-term investments
    
    
    7,700
    
    
    
    9,744Accounts receivable, less allowance of $8,017 and $6,783, respectively
    
    
    77,933
    
    
    
    66,170Inventories, net
    
    
    66,579
    
    
    
    64,044Prepaid expenses and other assets
    
    
    5,603
    
    
    
    6,371Other receivables
    
    
    1,595
    
    
    
    981Total current assets
    
    
    208,710
    
    
    
    228,370Restricted cash
    
    
    2,194
    
    
    
    2,204Property and equipment, net
    
    
    38,086
    
    
    
    37,985Goodwill
    
    
    591,438
    
    
    
    586,648Other intangible assets, net
    
    
    223,336
    
    
    
    231,000Other assets
    
    
    637
    
    
    
    899Total assets
    
    $
    1,064,401
    
    
    $
    1,087,106Liabilities and stockholders equityCurrent liabilitiesAccounts payable
    
    $
    16,303
    
    
    $
    21,511Accrued compensation and benefits
    
    
    29,430
    
    
    
    35,301Accrued liabilities
    
    
    46,900
    
    
    
    49,429Deferred revenue
    
    
    4,715
    
    
    
    9,347Current portion of long-term debt
    
    
    3,571
    
    
    
    3,571Total current liabilities
    
    
    100,919
    
    
    
    119,159Long-term debt
    
    
    5,536
    
    
    
    6,429Other long-term liabilities
    
    
    3,719
    
    
    
    3,037Total liabilities
    
    
    110,174
    
    
    
    128,625Stockholders equityCommon stock, $0.01 par value, 300,000,000 shares authorized, shares
issued and outstanding: 105,403,600 shares at March 30, 2008 and
105,078,769 at December 31, 2007
    
    
    1,054
    
    
    
    1,051Additional paid in capital
    
    
    1,745,105
    
    
    
    1,739,064Accumulated deficit
    
    
    (790,809
    )
    
    
    (781,039
    )Accumulated other comprehensive loss
    
    
    (1,123
    )
    
    
    (595
    )Total stockholders equity
    
    
    954,227
    
    
    
    958,481Total liabilities and stockholders equity
    
    $
    1,064,401
    
    
    $
    1,087,106
  1




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ev3 Inc.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (Dollars in thousands, except per share amounts)
 (unaudited)
 Three Months EndedMarch 30, 2008
    
    
    April 1, 2007SalesProduct sales
    
    $
    95,050
    
    
    $
    61,499Research collaboration
    
    
    6,207
    
    
    
    Net sales
    
    
    101,257
    
    
    
    61,499Operating expenses:Product cost of goods sold
    
    
    31,970
    
    
    
    20,457Research collaboration
    
    
    1,648
    
    
    
    Sales, general and administrative
    
    
    59,828
    
    
    
    39,137Research and development
    
    
    11,726
    
    
    
    7,433Amortization of intangible assets
    
    
    8,243
    
    
    
    4,100Loss on sale of assets, net
    
    
    
    
    
    
    16Total operating expenses
    
    
    113,415
    
    
    
    71,143Loss from operations
    
    
    (12,158
    )
    
    
    (9,644
    )Other income:Interest income, net
    
    
    (441
    )
    
    
    (109
    )Other income, net
    
    
    (2,432
    )
    
    
    (317
    )Loss before income taxes
    
    
    (9,285
    )
    
    
    (9,218
    )Income tax expense
    
    
    485
    
    
    
    276Net loss
    
    $
    (9,770
    )
    
    $
    (9,494
    )Net loss per share:Net loss per common share (basic and diluted)
    
    $
    (0.09
    )
    
    $
    (0.17
    )Weighted average shares outstanding
    
    
    104,094,790
    
    
    
    57,514,255
  2




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ev3 Inc.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Dollars in thousands, except per share amounts)
 (unaudited)
 Three Months EndedMarch 30,
    
    
    April 1,2008
    
    
    2007Operating activitiesNet loss
    
    $
    (9,770
    )
    
    $
    (9,494
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    11,176
    
    
    
    5,904Provision for bad debts and sales returns
    
    
    1,518
    
    
    
    306Provision for inventory obsolescence
    
    
    1,677
    
    
    
    1,025Loss on disposal of assets
    
    
    
    
    
    
    16Stock compensation expense
    
    
    4,731
    
    
    
    2,199Change in operating assets and liabilities:Accounts receivable
    
    
    (12,816
    )
    
    
    (4,574
    )Inventories
    
    
    (4,214
    )
    
    
    (5,099
    )Prepaid expenses and other assets
    
    
    397
    
    
    
    (864
    )Accounts payable
    
    
    (5,754
    )
    
    
    1,259Accrued expenses and other liabilities
    
    
    (11,705
    )
    
    
    (1,479
    )Deferred revenue
    
    
    (6,207
    )
    
    
    Net cash used in operating activities
    
    
    (30,967
    )
    
    
    (10,801
    )Investing activitiesProceeds from sale of short-term investments
    
    
    2,044
    
    
    
    6,800Purchase of property and equipment
    
    
    (3,082
    )
    
    
    (1,878
    )Purchase of patents and licenses
    
    
    (579
    )
    
    
    (651
    )Purchase of distribution rights
    
    
    
    
    
    
    (6,500
    )Payments for the acquisition of FoxHollow, net of cash acquired
    
    
    (136
    )
    
    
    Change in restricted cash
    
    
    68
    
    
    
    722Net cash used in investing activities
    
    
    (1,685
    )
    
    
    (1,507
    )Financing activitiesProceeds from issuance of debt
    
    
    
    
    
    
    5,000Payments on long-term debt
    
    
    (893
    )
    
    
    (536
    )Payments on capital lease obligations
    
    
    (38
    )
    
    
    (32
    )Proceeds from exercise of stock options
    
    
    454
    
    
    
    2,531Proceeds from employee stock purchase plan
    
    
    859
    
    
    
    Net cash provided by financing activities
    
    
    382
    
    
    
    6,963Effect of exchange rate changes on cash
    
    
    510
    
    
    
    24Net decrease in cash and cash equivalents
    
    
    (31,760
    )
    
    
    (5,321
    )Cash and cash equivalents, beginning of period
    
    
    81,060
    
    
    
    24,053Cash and cash equivalents, end of period
    
    $
    49,300
    
    
    $
    18,732
  3




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ev3 Inc.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. Description of Business
  2. Basis of Presentation
   Accounting Changes
   FoxHollow
  4




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3. Fair Value Measurements
  
    
    Level 1. Observable inputs such as quoted prices in active markets;
    
    Level 2. Inputs, other than the quoted prices in active markets, that are observable
either directly or indirectly; and
    
    Level 3. Unobservable inputs in which there is little or no market data, which require
the reporting entity to develop its own assumptions.
 Assets and Liabilities Measured at Fair Value on a Recurring Basis
  4. Stock-Based Compensation
  March 30, 2008
    
    
    April 1, 2007Stock-Based Compensation Charges:Product cost of goods sold
    
    $
    297
    
    
    $
    158Sales, general and administrative
    
    
    3,594
    
    
    
    1,859Research and development
    
    
    840
    
    
    
    182Total stock-based compensation charges
    
    $
    4,731
    
    
    $
    2,199
   5




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5. FoxHollow Acquisition
    October 4,2007Intangible assets
    
    $
    199,500Acquired in-process research and development
    
    
    70,700Tangible assets acquired, net of liabilities assumed
    
    
    151,975Goodwill
    
    
    434,877Estimated fair value of identifiable tangible and intangible assets and goodwill,
net of cash acquired and liabilities assumed
    
    $
    857,052
 Pro Forma Results of Operations
   Three Months EndedApril 1, 2007Reported
    
    Pro formaNet sales
    
    $
    61,499
    
    
    $
    110,716Net loss
    
    $
    (9,494
    )
    
    $
    (15,986
    )Net loss per share:Basic and diluted
    
    $
    (0.17
    )
    
    $
    (0.16
    )
 6. Restructuring
  6




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Purchase Price Adjustments (EITF 95-3)Adjustments toBalance at
    
    
    Purchase Price
    
    
    
    
    
    
    Balance atDecember 31, 2007
    
    
    Allocation
    
    
    Amounts Paid
    
    
    March 30, 2008Workforce reductions
    
    $
    7,605
    
    
    $
    2,141
    
    
    $
    (3,605
    )
    
    $
    6,141Termination of contractual commitments
    
    
    2,476
    
    
    
    807
    
    
    
    
    
    
    
    3,283Total
    
    $
    10,081
    
    
    $
    2,948
    
    
    $
    (3,605
    )
    
    $
    9,424
   ev3 Legacy Expensed (FAS 112)AmountsBalance at
    
    
    Charged to
    
    
    
    
    
    
    Balance atDecember 31, 2007
    
    
    Expense
    
    
    Amounts Paid
    
    
    March 30, 2008Workforce reductions
    
    $
    999
    
    
    $
    
    
    
    $
    (546
    )
    
    $
    453Total
    
    $
    999
    
    
    $
    
    
    
    $
    (546
    )
    
    $
    453
 7. Inventories
  March 30, 2008
    
    
    December 31, 2007Raw materials
    
    $
    14,154
    
    
    $
    18,003Work in-progress
    
    
    5,941
    
    
    
    3,946Finished goods
    
    
    56,672
    
    
    
    53,06376,767
    
    
    
    75,012Inventory reserve
    
    
    (10,188
    )
    
    
    (10,968
    )Inventory, net
    
    $
    66,579
    
    
    $
    64,044
 7




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8. Property and Equipment, Net
  March 30, 2008
    
    
    December 31, 2007Machinery and equipment
    
    $
    29,370
    
    
    $
    27,405Office furniture and equipment
    
    
    18,107
    
    
    
    16,897Leasehold improvements
    
    
    15,640
    
    
    
    14,656Construction in progress
    
    
    5,862
    
    
    
    6,95768,979
    
    
    
    65,915Less:Accumulated depreciation and amortization
    
    
    (30,893
    )
    
    
    (27,930
    )Property and equipment, net
    
    $
    38,086
    
    
    $
    37,985
  9. Goodwill and Other Intangible Assets
  PeripheralVascular
    
    
    Neurovascular
    
    
    TotalBalance as of December 31, 2007
    
    $
    501,394
    
    
    $
    85,254
    
    
    $
    586,648Adjustment to goodwill related
to acquisition of
FoxHollow
    
    
    4,790
    
    
    
    
    
    
    
    4,790Balance as of March 30, 2008
    
    $
    506,184
    
    
    $
    85,254
    
    
    $
    591,438
   Weighted
    
    
    March 30, 2008
    
    
    December 31, 2007Average
    
    
    Gross
    
    
    
    
    
    
    Net
    
    
    Gross
    
    
    
    
    
    
    NetUseful Life
    
    
    Carrying
    
    
    Accumulated
    
    
    Carrying
    
    
    Carrying
    
    
    Accumulated
    
    
    Carrying(in years)
    
    
    Amount
    
    
    Amortization
    
    
    Amount
    
    
    Amount
    
    
    Amortization
    
    
    AmountPatents and licenses
    
    
    5.0
    
    
    $
    14,339
    
    
    $
    (5,193
    )
    
    $
    9,146
    
    
    $
    13,802
    
    
    $
    (4,890
    )
    
    $
    8,912Developed technology
    
    
    10.0
    
    
    
    202,416
    
    
    
    (54,580
    )
    
    
    147,836
    
    
    
    202,416
    
    
    
    (50,213
    )
    
    
    152,203Trademarks and tradenames
    
    
    9.0
    
    
    
    12,222
    
    
    
    (3,792
    )
    
    
    8,430
    
    
    
    12,222
    
    
    
    (3,454
    )
    
    
    8,768Customer relationships
    
    
    10.0
    
    
    
    56,094
    
    
    
    (14,313
    )
    
    
    41,781
    
    
    
    56,094
    
    
    
    (13,094
    )
    
    
    43,000Distribution rights
    
    
    2.5
    
    
    
    9,274
    
    
    
    (4,637
    )
    
    
    4,637
    
    
    
    9,274
    
    
    
    (3,710
    )
    
    
    5,564Merck exclusivity
    
    
    3.3
    
    
    
    13,600
    
    
    
    (2,094
    )
    
    
    11,506
    
    
    
    13,600
    
    
    
    (1,047
    )
    
    
    12,553Other intangible assets
    
    
    
    
    
    $
    307,945
    
    
    $
    (84,609
    )
    
    $
    223,336
    
    
    $
    307,408
    
    
    $
    (76,408
    )
    
    $
    231,000
 8




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2008
    
    $
    31,2902009
    
    
    26,7042010
    
    
    23,6952011
    
    
    18,1042012
    
    
    18,047
 10. Long-Term Debt
  March 30, 2008
    
    
    December 31, 2007Equipment term loan
    
    $
    9,107
    
    
    $
    10,000Less: current portion
    
    
    (3,571
    )
    
    
    (3,571
    )Total long-term debt
    
    $
    5,536
    
    
    $
    6,429
   th
  9




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Remaining 2008
    
    $
    2,6792009
    
    
    3,5712010
    
    
    2,5002011
    
    
    357Total
    
    $
    9,107
 11. Other Comprehensive Loss
  Three Months EndedMarch 30, 2008
    
    
    April 1, 2007Net loss
    
    $
    (9,770
    )
    
    $
    (9,494
    )Changes in unrealized losses on investments
    
    
    (407
    )
    
    
    Changes in foreign currency translation
    
    
    (121
    )
    
    
    (72
    )Total comprehensive loss
    
    $
    (10,298
    )
    
    $
    (9,566
    )
 12. Commitments and Contingencies
 Letters of Credit
  Earn-Out Contingencies
  Contingencies
  10




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Global Coil Patent Litigation
  Embolic Protection Patent Litigation
  Appriva Medical, Inc Acquisition Litigation
   11




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FoxHollow Litigation
       12




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13. Segment and Geographic Information
     Three Months EndedMarch 30, 2008
    
    
    April 1, 2007Net salesPeripheral vascular:Atherectomy
    
    $
    22,700
    
    
    $
    Stents
    
    
    24,032
    
    
    
    19,806Thrombectomy and embolic protection
    
    
    5,955
    
    
    
    6,218Procedural support and other
    
    
    11,426
    
    
    
    10,467Total Peripheral vascular
    
    $
    64,113
    
    
    $
    36,491Neurovascular:Embolic products
    
    $
    17,864
    
    
    $
    12,926Neuro access and delivery products and other
    
    
    13,073
    
    
    
    12,082Total Neurovascular
    
    $
    30,937
    
    
    $
    25,008Research collaboration
    
    $
    6,207
    
    
    $
    Total net sales
    
    $
    101,257
    
    
    $
    61,499Gross profitPeripheral vascular
    
    $
    40,408
    
    
    $
    21,962Neurovascular
    
    
    22,672
    
    
    
    19,080Research collaboration
    
    
    4,559
    
    
    
    Total
    
    $
    67,639
    
    
    $
    41,042Operating expense
    
    
    113,415
    
    
    
    50,686Loss from operations
    
    $
    (12,158
    )
    
    $
    (9,644
    )
 March 30, 2008
    
    
    December 31, 2007Total assetsPeripheral vascular
    
    $
    912,351
    
    
    $
    936,348Neurovascular
    
    
    152,050
    
    
    
    150,758Total
    
    $
    1,064,401
    
    
    $
    1,087,106
 13




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Three Months EndedMarch 30, 2008
    
    
    April 1, 2007Geographic DataNet salesUnited States
    
    $
    66,452
    
    
    $
    35,140International
    
    
    34,805
    
    
    
    26,359Total net sales
    
    $
    101,257
    
    
    $
    61,499
 March 30, 2008
    
    
    December 31, 2007Long-lived assetsUnited States
    
    $
    37,077
    
    
    $
    37,015International
    
    
    1,009
    
    
    
    970Total long-lived assets
    
    $
    38,086
    
    
    $
    37,985
 14. Related Party Transaction
  15. Loss Per Share
  March 30, 2008
    
    April 1, 2007Options
    
    
    10,577,312
    
    
    
    5,784,807
 14




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Business Overview
       15




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Summary of First Fiscal Quarter 2008 Financial Results and Outlook
    
    
    Our net sales increased 65% to $101.3 million in the three months ended March 30,
2008 compared to the three months ended April 1, 2007 reflecting sales growth in each
of our reportable business segments and geographic markets. In particular, our sales
growth was positively affected by our acquisition of FoxHollow, an increase in sales of
our neurovascular products and EverFlex self-expanding stents and increased market
penetration of products introduced during the past two years. Our net sales in the
three months ended March 30, 2008 included $22.7 million of net sales from our
FoxHollow products and $6.2 million from our research collaboration activities with
Merck.
 16




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
    
    Net sales of our peripheral vascular products increased 76% to $64.1 million in the
three months ended March 30, 2008 compared to the three months ended April 1, 2007
primarily as a result of our acquisition of FoxHollow and increased market penetration
of our EverFlex, and to a lesser extent, partially offset by sales declines in older
generation products. We expect our peripheral vascular sales to increase during the
remainder of 2008 as compared to the same period last year primarily as a result of our
FoxHollow acquisition, increased cross-selling opportunities as a result of our
acquisition of FoxHollow, the introduction of our atherectomy products into
international markets, additional market penetration of products launched during the
past two years and new product introductions anticipated in 2008.
    
    Net sales of our neurovascular products increased 24% to $30.9 million in the three
months ended March 30, 2008 compared to the three months ended April 1, 2007 primarily
as a result of the launch of our Axium coil and continued market penetration of our
Onyx Liquid Embolic System for the treatment of brain arterial-venous malformations, or
AVMs. We expect our neurovascular net sales to increase during the remainder of 2008 as
compared to the same period in 2007 due to market growth, developing new customer
accounts, additional market penetration of products launched during the past two years,
and new product introductions anticipated in 2008, including our Solitaire Flow
Restoration stent which we have started to selectively commercialize in Europe.
    
    As a result of our FoxHollow acquisition, we recognize research collaboration
revenue and incur research collaboration expense from our collaboration and license
agreement with Merck. Research collaboration revenue was $6.2 million and research
collaboration expense was $1.6 million in the three months ended March 30, 2008. As a
result of Dr. Simpsons resignation from our board of directors in February 2008, Merck
has the right to terminate the collaboration and license agreement at any time within
six months of Dr. Simpsons resignation. We expect that research collaboration expense
will fluctuate in absolute dollars and as a percentage of our research collaboration
revenue as the amount of services we perform under the agreement will vary from period
to period.
    
    Approximately 34% of our net sales during the three months ended March 30, 2008 were
generated outside of the United States compared to 43% during the three months ended
April 1, 2007. This decrease was due primarily to our increased U.S. net sales as a
result of the FoxHollow acquisition. International growth was driven by an increase in
market penetration of the EverFlex family of stents and by the launch of the Axium
coil. Changes in foreign currency exchange rates had a positive impact of $2.6 million
on our first fiscal quarter 2008 net sales as compared to a positive impact of $1.4
million on our first fiscal quarter 2007 net sales, principally resulting from the
relationship of the Euro to the U.S. dollar in comparison with the year-ago quarter.
    
    In our peripheral vascular segment, product cost of goods sold as a percentage of
product sales decreased to 37% in the three months ended March 30, 2008 compared to 40%
in the three months ended April 1, 2007 primarily attributable to increased sales
volume and to a lesser extent, improved manufacturing efficiencies. In our
neurovascular segment, product cost of goods sold as a percentage of product sales
increased to 27% in the three months ended March 30, 2008 compared to 24% in the three
months ended April 1, 2007 primarily attributable to higher manufacturing costs related
to new product introductions.
    
    Our operating expenses increased 59% in the three months ended March 30, 2008
compared to the three months ended April 1, 2007 primarily as a result of our
acquisition of FoxHollow. We expect our sales, general and administrative expenses,
research and development expense and amortization of intangible assets to increase in
absolute dollars in the remainder of 2008 as compared to the same period in 2007. We
expect sales, general and administrative expenses and research and development expense
to decline as a percentage of net sales. The resignation of our former chairman,
president and chief executive officer in April 2008, will result in the recognition of
approximately $1.7 million of non-cash stock-based compensation expense which will be
recorded as sales, general and administrative expense in second quarter 2008 as a
result of accelerated vesting of certain stock options and awards and the extension of
the exercise period on certain stock options.
    
    Our net loss for 2008 increased to $9.8 million, or $0.09 per share, in the three
months ended March 30, 2008 compared to $9.5 million, or $0.17 per share, in the three
months ended April 1, 2007. Our focus for the remainder of 2008 is to improve our
profitability.
    
    Our cash, cash equivalents and short-term investments available to fund our current
operations were $57.0 million at March 30, 2008. We believe our cash, cash equivalents,
short-term investments and current and
anticipated financing arrangements will be sufficient to meet our liquidity requirements
through at least the next 12 months.
 17




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##### Table of Contents



Results of Operations
  Three Months Ended
    
    
    PercentMarch 30, 2008
    
    
    April 1, 2007
    
    
    ChangeResults of Operations:SalesProduct sales
    
    $
    95,050
    
    
    $
    61,499
    
    
    
    54.6
    %Research collaboration
    
    
    6,207
    
    
    
    
    
    
    
    NMNet sales
    
    
    101,257
    
    
    
    61,499
    
    
    
    64.6
    %Operating expenses:Product cost of goods sold (a)
    
    
    31,970
    
    
    
    20,457
    
    
    
    56.3
    %Research collaboration
    
    
    1,648
    
    
    
    
    
    
    
    NMSales, general and administrative (a)
    
    
    59,828
    
    
    
    39,137
    
    
    
    52.9
    %Research and development (a)
    
    
    11,726
    
    
    
    7,433
    
    
    
    57.8
    %Amortization of intangible assets
    
    
    8,243
    
    
    
    4,100
    
    
    
    101.0
    %Loss on sale of assets, net
    
    
    
    
    
    
    16
    
    
    
    NMTotal operating expenses
    
    
    113,415
    
    
    
    71,143
    
    
    
    59.4
    %Loss from operations
    
    
    (12,158
    )
    
    
    (9,644
    )
    
    
    26.1
    %Other income:Interest income, net
    
    
    (441
    )
    
    
    (109
    )
    
    
    NMOther income, net
    
    
    (2,432
    )
    
    
    (317
    )
    
    
    NMLoss before income taxes
    
    
    (9,285
    )
    
    
    (9,218
    )
    
    
    0.7
    %Income tax expense
    
    
    485
    
    
    
    276
    
    
    
    NMNet loss
    
    $
    (9,770
    )
    
    $
    (9,494
    )
    
    
    2.9
    %Net loss per common share
(basic and diluted)
    
    $
    (0.09
    )
    
    $
    (0.17
    )Weighted average shares outstanding
    
    
    104,094,790
    
    
    
    57,514,255(a) Includes stock-based compensation
charges of:Product cost of goods sold
    
    $
    297
    
    
    $
    158Sales, general and administrative
    
    
    3,594
    
    
    
    1,859Research and development
    
    
    840
    
    
    
    182$
    4,731
    
    
    $
    2,199
 18




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##### Table of Contents



Three Months Ended
    
    
    PercentMarch 30, 2008
    
    
    April 1, 2007
    
    
    ChangeNET SALES BY SEGMENT:Peripheral vascular:Atherectomy
    
    $
    22,700
    
    
    $
    
    
    
    
    NMStents
    
    
    24,032
    
    
    
    19,806
    
    
    
    21.3
    %Thrombectomy and embolic protection
    
    
    5,955
    
    
    
    6,218
    
    
    
    (4.2
    )%Procedural support and other
    
    
    11,426
    
    
    
    10,467
    
    
    
    9.2
    %Total Peripheral vascular
    
    $
    64,113
    
    
    $
    36,491
    
    
    
    75.7
    %Neurovascular:Embolic products
    
    
    17,864
    
    
    
    12,926
    
    
    
    38.2
    %Neuro access and delivery products and other
    
    
    13,073
    
    
    
    12,082
    
    
    
    8.2
    %Total Neurovascular
    
    $
    30,937
    
    
    $
    25,008
    
    
    
    23.7
    %Research collaboration:
    
    $
    6,207
    
    
    $
    
    
    
    
    NMTotal net sales
    
    $
    101,257
    
    
    $
    61,499
    
    
    
    64.6
    %
 Three Months Ended
    
    
    PercentMarch 30, 2008
    
    
    April 1, 2007
    
    
    ChangeNET SALES BY GEOGRAPHY:United States
    
    $
    66,452
    
    
    $
    35,140
    
    
    
    89.1
    %InternationalBefore foreign exchange impact
    
    
    32,166
    
    
    
    26,359
    
    
    
    22.0
    %Foreign exchange impact
    
    
    2,639
    
    
    
    
    
    
    
    NMTotal
    
    
    34,805
    
    
    
    26,359
    
    
    
    32.0
    %Total net sales
    
    $
    101,257
    
    
    $
    61,499
    
    
    
    64.6
    %
 Comparison of the Three Months Ended March 30, 2008 to the Three Months Ended April 1, 2007
 Net sales
 Net sales of peripheral vascular products
 Net sales of neurovascular products
 19




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##### Table of Contents



Research collaboration (revenue).
 Net sales by geography
 Product cost of goods sold
 Sales, general and administrative expense
 Research and development
 Amortization of intangible assets
 Interest income, net
 Other income, net
 20




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##### Table of Contents



Income tax expense
 Liquidity and Capital Resources
 March 30,
    
    December 31,Balance Sheet Data
    
    2008
    
    2007(in thousands)Cash and cash equivalents
    
    $
    49,300
    
    
    $
    81,060Short-term investments
    
    
    7,700
    
    
    
    9,744Total current assets
    
    
    208,710
    
    
    
    228,370Total assets
    
    
    1,064,401
    
    
    
    1,087,106Total current liabilities
    
    
    100,919
    
    
    
    119,159Total liabilities
    
    
    110,174
    
    
    
    128,625Total stockholders equity
    
    
    954,227
    
    
    
    958,481
 Cash, cash equivalents and short-term investments.
 Operating activities.
 Investing activities.
 Financing activities.
 Contractual cash obligations.
 Financing history.
 21




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##### Table of Contents



Credit facility.
 Other liquidity information
  Credit risk.
 22




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##### Table of Contents



Related Party Transactions
  Critical Accounting Policies and Estimates
  Seasonality and Quarterly Fluctuations
   Off-Balance Sheet Arrangements
  Recent Accounting Pronouncements
    23




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##### Table of Contents



Forward-Looking Statements
   
    
    History of operating losses, negative cash flow and failure to achieve future
profitability;
    
    Continued difficulties in integrating FoxHollows operations and failure to realize
anticipated cost savings, net sales and other potential benefits of the acquisition in
a timely manner or at all;
    
    Continued elevated customer inventory levels of our SilverHawk product which have
adversely affected our sales;
    
    Potential loss of revenue if Merck exercises its option to terminate our
collaboration and license agreement as a result of John B. Simpson, M.D. Ph.D.
resigning from our board of directors in February 2008;
    
    Changes in and failure to retain or replace senior management or other key employees
and the avoidance of business disruption and employee distraction as we execute our
restructuring activities, including the closing of our Redwood City, California
facility and our recent previous reductions in sales personnel;
    
    Ability to implement, fund and achieve sustainable cost savings measures that will
better align our operating expenses with our anticipated net sales levels and
reallocate resources to better support growth initiatives;
    
    Failure to renew our revolving line of credit which matures in June 2008 or obtain
additional capital when needed or on acceptable terms;
    
    Failure of our business strategy, which relies on assumptions about the market for
our products;
    
    Lack of market acceptance of new products;
    
    Decreased demand for our SilverHawk product;
    
    Delays in product introduction;
    
    Risks inherent in operating internationally and selling and shipping our products
and purchasing our products and components internationally;
    
    Exposure to assertions of intellectual property claims and failure to protect our
intellectual property;
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##### Table of Contents




    
    Disruption in our ability to manufacture our products, especially as we transition
manufacturing capabilities from our Redwood City, California facility to our Plymouth,
Minnesota and Irvine, California facilities;
    
    Ability of our key suppliers to provide us products or components or raw materials
for products resulting in our inability to supply market demand for our products;
    
    Increases in prices for raw materials;
    
    Significant and unexpected claims under our EverFlex self-expanding stent worldwide
fracture-free guarantee program in excess of our reserves;
    
    Failure to integrate effectively newly acquired operations, including most recently
FoxHollows operations;
    
    Incurrence of additional debt, contingent liabilities and expenses in connection
with future acquisitions;
    
    Failure of our customers or patients to obtain third party reimbursement for their
purchases of our products;
    
    Consolidation in the healthcare industry, which could lead to demands for price
concessions or to the exclusion of some suppliers from certain of our markets;
    
    Failure to comply with applicable laws and regulations, to obtain and maintain
required regulatory approvals for our products in a cost-effective manner or at all and
to market our products in an appropriate manner;
    
    Adverse changes in applicable laws or regulations;
    
    Exposure to adverse side effects from our products and product liability claims;
    
    Fluctuations in foreign currency exchange rates and interest rates;
    
    Fluctuations in quarterly operating results as a result of seasonality and other
items, such as the timing and extent of promotional pricing or volume discounts; the
timing of larger orders by customers and the timing of shipment of such orders; changes
in average selling prices; the number and mix of products sold in the quarter; the
availability and cost of components and materials; and costs, benefits and timing of
new product introductions;
    
    Obligation to make significant milestone payments not currently reflected in our
financial statements;
    
    Reliance on independent sales distributors and sales associates to market and sell
our products in certain countries;
    
    Loss of customers;
    
    Expiration or termination of our distribution agreement with Invatec S.r.l. and our
inability to commercially launch on a timely basis our own products to replace the
Invatec products we distribute or any disruption in the supply of products of Invatec
S.r.l. that we distribute or our relationship with Invatec;
    
    Dependence upon a few of our products to generate a large portion of our net sales
and exposure if drug-eluting stents become a dominant therapy in the peripheral
vascular stent market and we are not able to develop or acquire a drug-eluting stent to
market and sell;
    
    Failure to develop innovative and successful new products and technologies;
    
    Highly competitive nature of the markets in which we sell our products and the
introduction of competing products;
    
    Inability to meet performance enhancement objectives, including efficiency and cost
reduction strategies;
    
    Reliance on our management information systems for inventory management,
distribution and other functions and to maintain our research and development and
clinical data;
    
    Failure to comply with our covenants under our loan and security agreement with
Silicon Valley Bank;
    
    Inability to use net operating losses to reduce tax liability if we become
profitable;
    
    Absence of expected returns from the amount of intangible assets we have recorded;
    
    Changes in generally accepted accounting principles and changes resulting from the
application of the purchase method of accounting relating to our acquisition of
FoxHollow;
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##### Table of Contents




    
    Effects of pending and threatened litigation;
    
    Conditions and changes in medical device industry or in general economic and
business conditions;
    
    Conflicts of interests due to our ownership structure; or
    
    Ineffectiveness of our internal controls.
   
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Interest Rate Risk
   Foreign Currency Exchange Rate Risk
  26




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##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
   Changes in Internal Control Over Financial Reporting
  27




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##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  We manufacture our products at single locations. Any disruption in these manufacturing facilities,
any patent infringement claims with respect to our manufacturing process or otherwise any inability
to manufacture a sufficient number of our products to meet demand could adversely affect our
business and operating results.
    28




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##### Table of Contents



ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 Recent Sales of Unregistered Equity Securities
  Issuer Purchases of Equity Securities
  Total Number
    
    
    
    
    
    
    Total Number of Shares
    
    
    Maximum Number ofof
    
    
    Average
    
    
    Purchased as Part of
    
    
    Shares that May Yet BeShares
    
    
    Price Paid
    
    
    Publicly Announced Plans or
    
    
    Purchased Under thePeriod
    
    Purchased (1)
    
    
    Per Share
    
    
    Programs (2)
    
    
    Plans or Programs (2)Month # 1
    
    
    
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A(January 1, 2008  February 3, 2008)Month # 2
    
    
    1,697
    
    
    $
    8.35
    
    
    
    N/A
    
    
    
    N/A(February 4, 2008  March 2, 2008)Month # 3
    
    
    
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/AMarch 3, 2008  March 30, 2008)Total:
    
    
    1,697
    
    
    $
    8.35
    
    
    
    N/A
    
    
    
    N/A
 
 (1)
    
    Consists of shares repurchased from employees in connection with the required payment of
withholding or employment-related tax obligations due in connection with the vesting of
restricted stock awards.(2)
    
    Our Board of Directors has not authorized any repurchase plan or program for purchase of our
shares of common stock or other equity securities on the open market or otherwise, other than
an indefinite number of shares in connection with the cashless exercise of outstanding stock
options and the surrender of shares of common stock upon the issuance or vesting of stock
grants to satisfy any required withholding or employment-related tax obligations.  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
 Not applicable.
 29




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##### Table of Contents



ITEM 6. EXHIBITS
  Exhibit No.
    
    Description31.1
    
    
    Certification of Chief Executive Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 and SEC Rule 13a-14(a)
(Filed herewith)31.2
    
    
    Certification of Chief Financial Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 and SEC Rule 13a-14(a)
(Filed herewith)32.1
    
    
    Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (Furnished herewith)32.2
    
    
    Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (Furnished herewith)
 30




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##### Table of Contents



SIGNATURES
  May 7, 2008
    ev3 Inc.By:
    /s/ Robert J. PalmisanoRobert J. PalmisanoPresident and Chief Executive Officer
(principal executive officer)By:
    /s/ Patrick D. SpanglerPatrick D. SpanglerSenior Vice President and Chief Financial Officer
(principal financial and accounting officer) 31




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##### Table of Contents



ev3 Inc.
QUARTERLY REPORT ON FORM 10-Q
 
 EXHIBIT INDEX
 Exhibit No.
    
    Description
    
    Method of Filing31.1
    
    Certification of Chief Executive
Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 and SEC
Rule 13a-14(a)
    
    Filed herewith31.2
    
    Certification of Chief Financial
Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 and SEC
Rule 13a-14(a)
    
    Filed herewith32.1
    
    Certification of Chief Executive
Officer Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
    
    Furnished herewith32.2
    
    Certification of Chief Financial
Officer Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
    
    Furnished herewith
 32