UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                   FORM 10-K/A

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

                     For the fiscal year ended June 30, 1998

                         Commission file number 0-27802


                       ARTERIAL VASCULAR ENGINEERING, INC.
              (Exact name of Company as specified in its charter)

              Delaware                                  94-3144218
    (State or other jurisdiction of         (I.R.S. Employer Identification No.)
     incorporation or organization)

3576 Unocal Place, Santa Rosa, California                 95403
(Address of principal executive offices)                (Zip code)

                                 (707) 525-0111
                (Company's telephone number, including area code)

           Securities registered pursuant to Section 12(b) of the Act:
                                      None

           Securities registered pursuant to Section 12(g) of the Act:
                         Common Stock, $0.001 Par Value

Indicate by check mark whether the Company (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 periods as the Company was required
to file such reports),  and (2) has been subject to such filing requirements for
the past 90 days. 
                               YES    X     NO____

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


As of July 31, 1998, there were 64,186,371  shares of Common Stock  outstanding.
The aggregate market value of voting stock held by non-affiliates of the Company
was  approximately  $2,056,140,000  based upon the  closing  price of the Common
Stock on July 31, 1998 on the Nasdaq  National  Market tier of The Nasdaq  Stock
Market. Shares of Common Stock held by each officer, director and holder of five
percent or more of the Common  Stock  outstanding  as of July 31, 1998 have been
excluded in that such persons may be deemed to be affiliates. This determination
of affiliate status is not necessarily conclusive.


                              --------------------

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions  of the Proxy  Statement  of  Company  for the 1998  Annual  Meeting of
Stockholders are incorporated by reference into Part III of this Form 10-K.

================================================================================

<PAGE>


                                     PART II

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

         The statements  contained in this Form 10-K that are not historical are
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,  including
statements  regarding  the  Company's  expectations,   beliefs,   intentions  or
strategies regarding the future.  Forward-looking statements and risk factors in
this Item 7 include,  without  limitation,  statements  regarding the extent and
timing  of  new  product  introductions,   competition,   regulatory  approvals,
expenditures and margin levels,  and the establishment of direct sales forces in
targeted countries. All forward-looking statements in this document are based on
information  available  to the  Company as of the date  hereof,  and the Company
assumes  no  obligation  to update  any such  forward-looking  statement.  It is
important to note that the Company's actual results could differ materially from
those in such forward-looking statements.  Additional forward-looking statements
risk  factors  include  those  discussed  in  the  sections  entitled  "Item  1.
Business,"  "Item 3. Legal  Proceedings,"  "Item 5. Market for the  Registrant's
Common Equity and Related  Stockholders," and "Item 8. Financial  Statements and
Supplementary  Data" as well as those that may be set forth in the reports filed
by the Company from time to time on Forms 10-Q and 8-K.


<PAGE>

Overview

         The Company is engaged in the design,  development,  manufacturing  and
marketing of stent systems and PTCA balloon catheters designed to be utilized in
connection with less invasive treatment of atherosclerosis. The Company believes
that it is currently one of the leading providers of coronary stent systems. The
Company  began  commercial  sales of its PTCA  catheters  in October  1993,  its
coronary  stent systems in October  1994,  and its  peripheral  stent systems in
December  1996.  In June  1997,  the  Company's  Japanese  distributor  received
regulatory  approval  for the  sale in  Japan of the  Company's  coronary  stent
systems,  and in January  1998 the Company  received  the related  reimbursement
approval.  In  December  1997,  the  Company  received  a PMA  from  the  FDA in
connection  with its  commencement  of  commercial  sales of its coronary  stent
systems in the United States. Prior to that time,  international sales accounted
for substantially all of the Company's revenues.

         The increase in the Company's  sales to date has primarily  been due to
greater demand for the Company's  coronary  stent  systems.  In order to support
increased levels of sales in the future and to augment its long-term competitive
position,  the Company  anticipates  that it will be required to make continuing
significant additional  expenditures in manufacturing,  research and development
(including  clinical  study and  regulatory  costs),  sales and  marketing,  and
administration,  both in absolute  dollars and as a percentage of net sales. The
Company also expects to incur  significant  legal  expenses  relating to ongoing
litigation, including patent litigation.

         Generally, the Company manufactures and ships product shortly after the
receipt of orders,  and anticipates that it will do so in the future. At various
times and to varying degrees  throughout the third and fourth quarterly  periods
of the fiscal year ended June 30, 1998, as a result of the  significant  demands
on the  Company's  production  capabilities  related  to its entry into the U.S.
market,  the  Company  delivered  some  customers'  orders  several  weeks after
receiving the orders.  The Company normally  attempts to deliver products to its
customers  within a few days after  receiving  an order.  The  Company  does not
believe that any of its customer  relationships  were materially  damaged by the
resulting temporary inconvenience and does not believe that the financial impact
on the Company of the backlog, if any, was material.  The Company  substantially
reduced the backlog  during the fourth quarter of fiscal year 1998 as additional
production resources were developed,  and has not, since such time, ever been in
significant backlog with respect to customer orders for its products.  There can
be no assurance, however, that a backlog will not develop in the future and that
such backlog will not have a material adverse effect on the Company's  business,
financial  condition  and  results  of  operations.  The  Company  has  recently
completed  construction  of a 130,000  square  foot  building  at its  corporate
headquarters  campus in Santa  Rosa,  California,  which is  largely  devoted to
manufacturing  activities.  However,  there  can be no  assurance  that such new
manufacturing  facility is sufficient to allow the Company to adequately  supply
the significant demands of the U.S. market on a long-term basis.

         The Company has a limited  history of  operations.  The increase in the
Company's  sales to date has been due to greater demand for the Company's  stent
systems and, to a much lesser degree,  its PTCA balloon  catheter  systems.  The
Company  believes  that it is  currently  one of the leading  providers of stent
systems  internationally.  In order to support  increased levels of sales in the
future  and  to  augment  its  long-term  competitive   position,   the  Company
anticipates that it will be required to make continuing  significant  additional
expenditures  in  manufacturing,  research and development  (including  clinical
study and regulatory  costs),  sales and marketing and  administration,  both in
absolute dollars and as a percentage of net sales.

         Since the  commencement  of sales of its coronary  stent systems in the
United States,  several of the Company's  competitors  have filed claims against
the Company  alleging,  among other things,  that such stent systems infringe on
certain patents of such competitors.  Although the Company  continually  reviews
the scope of relevant  U.S.  and foreign  patents  and related  litigation,  the
question of infringement involves complex legal and factual issues and is highly
uncertain.  There can be no assurance that any conclusion reached by the Company
regarding infringement will be consistent with the resolution of such issue by a
court. If the Company's  products are determined to infringe such patents and it
cannot obtain a license on commercially  reasonable  terms or modify its current
technology or develop new products to avoid  infringement,  the Company would be
required to cease its sales of the affected products in the United States, which
could  have a  material  adverse  affect on the  Company's  business,  financial
condition and results of operations.

         The increasing number of devices in the international  stent market and
the desire of companies to obtain  market share has resulted in increased  price
competition,  particularly in the second and third quarters of fiscal 1997. Such
competition  has, in the past,  caused the Company to reduce prices on its stent
systems.  The Company expects that, as the stent industry develops,  competition
and pricing  pressures  will increase.  In particular,  it is likely that in the
United  States  the FDA  will  begin to use a  streamlined  PMA  process  once a
sufficient  number of similar  coronary  stent  products  have been  cleared for
commercial   sale  in  the  United  States,   and  will  permit  coronary  stent
manufacturers  to utilize a  simplified  clinical  trial  structure in obtaining
marketing  approval here as sufficient stent  performance data enters the public
domain.  Thus,  the regulatory  barriers to entry in the United States  coronary
stent market that currently exist may, in the future,  be lowered  significantly
with respect to both new market entrants and new products introduced by existing
U.S. competitors. If the Company is forced to effect further price reductions in
connection with such increased  competition,  such  reductions  would reduce net
sales in future periods if not offset by increased unit sales or other factors.

         The Company  anticipates  that its results of operations  may fluctuate
for the  foreseeable  future due to several  factors,  including  variations  in
operating  expenses,  the costs and the outcome of litigation,  costs associated
with  integration of  acquisitions,  the Company's  ability to  manufacture  its
products efficiently,  competition (including pricing pressures),  the timing of
new  product  introductions  or  transitions  to  new  products,  the  costs  of
establishing  direct sales  operations,  the timing of research and  development
expenses (including clinical trial related  expenditures),

<PAGE>

timing of  regulatory  and third  party  reimbursement  approvals,  the level of
third-party  reimbursement,  sales  by  distributors,  the  mix of  sales  among
distributors   and  the  Company's  direct  sales  force,  the  fluctuations  in
international currency exchange rates, and seasonal factors impacting the number
of elective angioplasty or stent procedures.  In addition, the Company's results
of operations  could be affected by the timing of orders from its  distributors,
changes in the Company's  distributor  network (including expenses in connection
with  termination of former  distributors),  the ability of the Company's direct
sales force and independent  distributors  to effectively  promote the Company's
products  and  the  ability  of the  Company  to  quickly  and  cost-effectively
establish an effective direct sales force in targeted  countries.  The Company's
limited operating history makes accurate  prediction of future operating results
difficult or impossible.  Although the Company has experienced  growth in recent
years  and  substantial  growth  in the most  recent  quarter,  there  can be no
assurance that, in the future, the Company will sustain revenue growth or remain
profitable  on a quarterly or annual basis or that its growth will be consistent
with predictions made by securities analysts.  The Company has experienced,  and
may experience in one or more future quarters,  operating results that are below
the  expectations  of public market analysts and investors.  In such event,  the
price of the Company's  common stock has been,  and would likely be,  materially
and adversely affected.

         Many older computer  software programs refer to years in terms of their
final two digits only.  Such  programs may  interpret  the year 2000 to mean the
year 1900 instead.  If not corrected,  those  programs could cause  date-related
transaction  failures.  AVE has an initiative  in place to address  certain year
2000  issues.  AVE  believes  that its existing  computer  programs  will not be
adversely  affected  by the year 2000  problem,  but that  some of the  computer
programs  acquired  as part of the Bard Cath Lab  Acquisition  are not year 2000
compliant. As a result, AVE is considering installing the same computer programs
used by AVE for management of, among other things,  inventory,  customer  orders
and financial and other  operations,  at certain of the Bard sites. The software
that will interface Bard's current systems with these AVE computer  programs has
been already been  developed by a consultant to Bard. The conversion of the Bard
sites to AVE's existing  computer  programs using the developed  software or the
conversion to an alternative  system is expected to be completed within the next
six to twelve months at a cost to AVE of approximately $1.2 million. AVE is also
considering adapting its operational computer systems to World Medical's systems
within  the same  time  period  and  estimates  that such  conversion  will cost
approximately  $300,000.  AVE is  currently  assessing  its  systems  outside of
information  systems and the year 2000  readiness of the suppliers and customers
of AVE, Bard and World  Medical.  AVE is also  assessing the type of contingency
plans that may be required in the event that any of its systems, or those of its
customers,  suppliers  or other  third  parties  are not ready by the year 2000.
AVE's initial  assessments  in these areas are  completed,  but AVE expects that
such  assessments  will  continue  through 1999 and  thereafter.  AVE  currently
expects that the total cost of these programs,  including the cost of converting
Bard's and World Medical's  systems to AVE's systems,  will be  approximately $2
million.  This total cost estimate does not include  potential  costs related to
any  customer or other  claims or the cost of  internal  software  and  hardware
replaced  in the  normal  course  of  business.  In the  reasonable  worst  case
scenario,  the installment of AVE's computer  programs at certain Bard sites and
at World  Medical  would not be  completed by the year 2000,  or, if  completed,
would not be  effective in  resolving  all problems  related to the year 2000 in
such case,  AVE's  computer  systems would  experience  delays or other problems
related to the year 2000,  and AVE's  suppliers and customers  would  experience
delays in orders or payments  or other year 2000  related  problems.  Management
does not  currently  believe  that the year 2000  matters  will have a  material
adverse  impact on AVE's  financial  condition  or overall  trends in results of
operations,  but there can be no  assurances  of this and AVE is  continuing  to
investigate the year 2000 matters and evaluate the potential  impact of the year
2000 problem. In addition,  there can be no assurance that the failure to ensure
year 2000  capability  by a supplier  or another  third  party  would not have a
material adverse effect on AVE.


Results of Operations - Years Ended June 30, 1998 and 1997

         Net sales.  For the fiscal  year  ended June 30,  1998,  net sales were
$387.6  million,  an increase  of 388% from $79.4  million in fiscal  1997.  The
increase in net sales was primarily due to significant increases in net sales of
the Company's Micro Stent II and GFX coronary stent systems in the United States
and of GFX coronary stent systems in Japan. The Company first began sales of its
Micro Stent II coronary stent systems in the United States in late December 1997
and of its GFX  coronary  stent  systems in late March 1998.  The Company  first
began sales of its GFX coronary  stent  systems in Japan in July 1997.  Sales in
the United States  comprised 65% of total net sales for fiscal 1998.  There were
no United States sales in fiscal 1997.  Sales to Japan  increased from 4% of net
sales in fiscal 1997 to 11% in fiscal 1998.  Outside of the United  States,  the
GFX family of coronary stent systems was responsible for a substantial  majority
of  the  Company's  net  sales.  The  GFX  was  released  in  certain  countries
internationally  in September 1996, and the GFX 2.5 and the GFX XL were released
in certain  countries  internationally  in June 1997.  The Company  expects that
coronary  stent system sales,  particularly  of the Company's  GFX(TM) family of
products,  will  constitute  the vast  majority  of total  net sales in the near
future,  and that the United  States  will  continue  to  produce a  significant
portion of the Company's total net sales.

         The Company  experienced  sales growth during the fiscal year in all of
its major markets,  including the United States, Europe, and Japan. Sales in the
United  States,  Europe and Asia  represented  approximately  65%,  19% and 12%,
respectively,  of the  Company's  total  net sales  during  fiscal  1998.  Japan
Lifeline  Co.,  Ltd.,  the  Company's   Japanese   distributor,   accounted  for
approximately  11% of the Company's  total net sales for the year ended June 30,
1998.


         In certain  international  territories,  including Europe,  the Company
suffered price  reductions  during the fiscal year.  These price reductions were
attributable  both to competitive  pressures and, in those countries  outside of
the United States where the Company has direct sales  operations,  exchange rate
fluctuations.  If the Company is forced to effect further price reductions, such
reductions  would reduce net sales in future  periods if not offset by increased
unit sales or other factors.

         Cost of Sales.  Cost of sales  increased  to $72.7  million in the year
ended  June 30,  1998 from $16.2  million in fiscal  1997,  and  decreased  as a
percentage  of net sales to 18.8% in fiscal 1998 from 20.4% in fiscal 1997.  The
increase in absolute  dollars  during the fiscal year was  primarily a result of
the  increased  volume of products  sold and, to a lesser  extent,  the costs of
additional  manufacturing  capacity and personnel necessary to support increased
sales  volume and $20.9  million in special  general  employee  bonuses  paid or
accrued  during the period.  The  decrease as a  percentage  of net sales during
fiscal 1998 was  primarily  the result of increased  aggregate  average  selling
prices (primarily due to U.S. sales), leveraging certain fixed overhead expenses
across a higher base of sales and, to a lesser  extent,  decreased  average unit
manufacturing  costs  (excluding  the  effect of the  special  general  employee
bonuses).

         The  allowance for obsolete  inventory  increased by  $2,621,000,  from
$635,000  in fiscal  1997 to  $3,256,000  in fiscal  1998.  The  increase in the
allowance for obsolete inventory was primarily a result of the significant scale
down in production of the Micro Stent II product.  In connection  with the scale
down,  the Company wrote off in fiscal 1998 all remaining  unsold  inventory and
materials used exclusively in the production of the Micro Stent II product.

       The Company  expects cost of sales  (excluding  the effect of the special
general  employee  bonuses) to  continue to increase in absolute  dollars as the
Company increases the volume of products sold and adds additional  manufacturing
capacity and  personnel.  If the Company is successful in continuing to leverage
certain  fixed  overhead  expenses  across a higher  base of sales and to reduce
average  unit  manufacturing  costs,  the  Company  expects  cost of  sales as a
percentage  of net  sales  to  remain  at a  level  generally  similar  to  that
experienced in fiscal 1998.

<PAGE>


         Research and  Development.  Research and  development  expenses,  which
include clinical study and regulatory  costs,  increased to $37.2 million in the
year ended June 30, 1998 from $11.4  million in fiscal 1997,  and decreased as a
percentage  of net sales to 9.6% in fiscal 1998 from 14.4% in fiscal  1997.  The
increase in absolute  dollars  during the fiscal year was  primarily  due to the
addition of research and development personnel,  increased levels of spending in
connection  with  clinical  studies  relating  to the GFX,  GFX 2.5,  and GFX XL
coronary stent systems and costs incurred in connection  with the development of
additional  products.  In addition,  during the fiscal year the Company incurred
approximately  $4.6  million  in  legal  expenses  relating  to  ongoing  patent
litigation and $4.5 million in special general  employee bonuses paid or accrued
during the period.  The decrease as a percentage  of net sales during the fiscal
year was primarily the result of leveraging  research and  development  expenses
across a higher base of sales.


         The Company expects  research and development  expenses  (excluding the
effect of the  special  general  employee  bonuses)  to  continue to increase in
absolute dollars as the Company increases clinical trial activities, pursues the
development of new products and incurs  increased  legal costs related to patent
litigation.  If the Company is successful in continuing to leverage research and
development  expenses  across a higher base of sales,  the Company  expects such
expenses as a percentage of net sales to remain at a level generally  similar to
that experienced in fiscal 1998.


         Selling,    General   and   Administrative.    Selling,   general   and
administrative  expenses  increased in absolute  dollars to $97.0 million in the
year ended June 30, 1998 from $22.5 million in the  comparable  period in fiscal
1997,  and  decreased as a percentage  of net sales to 25.0% in fiscal 1998 from
28.3% in fiscal 1997.  The increase  during the fiscal year in absolute  dollars
primarily  reflected  additional  costs of sales,  marketing and other personnel
necessary to support the  Company's  higher level of  operations,  including the
commencement  of direct sales  operations  in the United States in late December
1997,  as well as sales  and  marketing  assistance  to the  Company's  Japanese
distributor and increased reserves.  The reserves for bad debts has increased by
$8.6  million,  of which  $2.2  million  relates to unpaid  accounts  receivable
balances  attributable to former European  distributors of the Company,  and the
remainder relates to the increase in sales volume, primarily related to the U.S.
launch of the Company's  products in late  December 1997.  Additionally,  during
fiscal 1998, the Company  incurred a $9.8 million special general employee bonus
expense and increased  legal costs relating  primarily to litigation with former
shareholders  of  Endothelial  Support  Systems,  Inc.,  subsequently  known  as
Endovascular   Support   Systems,   Inc.   ("ESS"),   and  certain   distributor
terminations,  which together resulted in related legal expenses of $7.4 million
for the  period.  The  decrease in  percentage  of sales for the fiscal year was
primarily the result of leveraging selling,  general and administrative expenses
across a higher base of sales.


         The  Company  expects  selling,   general  and   administrative   costs
(excluding the effect of the special  general  employee  bonuses) to continue to
increase in absolute  dollars in the future primarily due to increased levels of
sales,  product support and  manufacturing  operations,  as well as increases in
finance,  legal and  administrative  costs.  If the  Company  is  successful  in
continuing to leverage  selling,  general and  administrative  expenses across a
higher base of sales,  the Company  expects such expenses as a percentage of net
sales to remain at a level generally similar to that experienced in fiscal 1998.


         Interest and Other Income. The Company had interest and other income of
$5.5 million in the year ended June 30, 1998, compared to $4.2 million in fiscal
1997. The increase during the fiscal year was primarily due to higher cash, cash
equivalents and short-term investments balances.


         Provision  for Income Taxes.  The Company's  provision for income taxes
was $71.1 million in the year ended June 30, 1998,  compared to $11.7 million in
fiscal 1997. The increase in this provision was a result of the Company's higher
earnings during fiscal 1998.

         The  income  tax rate on sales in the  United  States has been and will
likely  continue to be higher than that related to the  Company's  international
sales, which receive a benefit from the Company's foreign sales corporation.

         Net Income.  The Company had net income of $115.1 million,  or 29.7% of
net  sales,  in the year  ended June 30,  1998  compared  to net income of $21.7
million, or 27.4% of net sales, in fiscal 1997.

Results of Operations - Years Ended June 30, 1997 and 1996

         Net sales.  For the year ended June 30,  1997,  net sales  increased to
$79.4  million,  an increase of 43.8% from $55.2  million for fiscal  1996.  The
increase in net sales was due to significant increases in sales of the Company's
stent systems,  particularly  the GFX and the Micro Stent II family of products.
The GFX was released in certain countries internationally in September 1996, and
the Micro Stent II was released in certain countries  internationally in October
1995.

         Cost of Sales.  Cost of sales increased to $16.2 million in fiscal 1997
from $10.6 million in fiscal 1996, and increased as a percentage of net sales to
20% in fiscal 1997 from 19% in fiscal  1996.  The  increase in absolute  dollars
during fiscal 1997 was  primarily a result of the  increased  volume of products
sold and, to a lesser extent, the costs of additional manufacturing capacity and
personnel  necessary  to support  increased  sales  volume.  The  increase  as a
percentage  of net sales during  fiscal 1997 was  primarily  the result of lower
unit pricing compared to fiscal 1996.

<PAGE>

         Research and  Development.  Research and  development  expenses,  which
include clinical study and regulatory costs increased to $11.4 million in fiscal
1997 from $6.5 million in fiscal 1996 and increased as a percentage of net sales
to 14% in fiscal 1997 from 12% in fiscal 1996. A one-time charge of $2.6 million
was included in fiscal 1996 in connection with the termination of certain patent
royalty  obligations.   Excluding  the  effect  of  this  charge,  research  and
development  expenses  increased from $3.9 million or 7% of net sales for fiscal
1996.  The increase in absolute  dollars and as a percentage of net sales during
fiscal  1997 was  primarily  due to the  addition of  research  and  development
personnel,  increased  levels of spending in connection  with  clinical  studies
relating  to the GFX,  Micro  Stent II and Micro  Stent II XL systems  and costs
incurred in connection with the development of additional products.

         Selling,    General   and   Administrative.    Selling,   general   and
administrative expenses increased in absolute dollars to $22.5 million in fiscal
1997 from $8.4 million in fiscal  1996,  and  increased  as a percentage  of net
sales to 28% in fiscal 1997 from 15% in fiscal 1996.  A one-time  charge of $2.6
million was  included  in fiscal  1996 in  connection  with the  termination  of
certain  patent  royalty  obligations.  Excluding  the  effect  of this  charge,
selling,  general and administrative expenses increased from $5.8 million or 11%
of net sales for fiscal  1996.  The  increase  during  fiscal  1997 in  absolute
dollars and as a percentage of sales  primarily  reflected  additional  costs of
marketing and other personnel necessary to support the Company's higher level of
operations,  including the  commencement  of direct sales  operations in France,
Germany, the Netherlands (to service the Benelux countries), Switzerland and the
United  Kingdom.  Additionally,  the  increase  reflects  increased  legal costs
relating primarily to litigation with former shareholders of ESS, which resulted
in related legal expenses of $3.4 million during fiscal 1997.

         Interest and Other Income. The Company had interest and other income of
$4.2  million  in fiscal  1997  compared  to $1.5  million in fiscal  1996.  The
increase was primarily due to additional interest income earned on the Company's
increased cash and cash equivalents and short-term  investment  balances arising
from the  utilization of proceeds from the Company's  initial public offering in
April 1996.

         Provision  for Income Taxes.  The Company's  provision for income taxes
was $11.7 million in fiscal 1997,  compared to $10.8 million in fiscal 1996. The
increase in this  provision  during  fiscal  1997 was a result of the  Company's
higher earnings during fiscal 1997.

         Net  Income.  The  Company  had net income of $21.8  million for fiscal
1997,  compared to $20.4 million for fiscal 1996 ($23.9  million if the one-time
charge is excluded).

Liquidity and Capital Resources


         Net cash provided by operating  activities was $71.7 million for fiscal
1998.  Net cash used in operating  activities in fiscal 1997 was $20.0  million,
and net cash used by  operating  activities  in fiscal  1996 was $20.5  million.
Excluding the effect of transactions in short-term investments,  the Company had
net cash provided by operating  activities of $136.4 million for fiscal 1998 and
$9.9  million in fiscal  1997,  principally  arising as a result of positive net
income for the period. Cash, cash equivalents and short-term investments totaled
$175.1  million at June 30, 1998 as compared to $87.2  million at June 30, 1997.
Working  capital  increased  to $204.5  million at June 30,  1998 as compared to
$114.5 million at June 30, 1997.  Inventories  increased to $9.5 million at June
30, 1998 from $7.3 million at June 30, 1997,  primarily  due to increased  sales
activity. The Company expects accounts receivable and inventories to increase in
absolute dollar amounts as sales increase.


         In connection with the construction of a new manufacturing facility, in
August 1997 the Company  entered  into a bank credit  agreement  for a revolving
credit  facility of $20 million.  The interest  rate on such  facility was LIBOR
plus  one-half  of one  percent.  Such  facility  was  secured by certain of the
Company's short-term investments and was due and payable on August 31, 1998. The
bank credit agreement contained no material restrictive covenants and was repaid
in full during the fourth  quarter of fiscal 1998.  The Company  incurred  $53.2
million in capital  expenditures  during fiscal 1998,  primarily relating to the
construction  of such new  manufacturing  facility  and the  purchase of related
manufacturing equipment.

         During  the  third  quarter  of fiscal  1998,  the  Company's  Board of
Directors  declared a two-for-one stock split that was effected in the form of a
100% stock dividend.  The stock split resulted in the issuance of  approximately
32 million additional shares of common stock.

         A significant  portion of the Company's  revenues are currently derived
from sales outside of the United States.  As a result,  the Company's  financial
results will be affected by changes in foreign  currency  exchange  rates to the
extent that such sales may be  denominated in foreign  currency.  The Company is
currently  exposed  to  fluctuations  in  currencies  in  western  Europe and in
Singapore.  During fiscal 1997, the Company began a program of from time to time
entering into derivative  financial  instruments in the form of forward exchange
contracts in order to reduce the  uncertainty of foreign  exchange rate movement
on inter-Company  sales denominated in foreign  currencies.  These contracts are
designed to  specifically  hedge against  gains or losses  incurred from foreign
currency  transactions  and are not used for  trading or  speculative  purposes.
Forward    exchange    contracts   are   used   to   hedge   material    foreign
currency-denominated  receivables  and  payables.  They  are  generally  settled
between three to six months with gains or losses  recorded in "Selling,  general
and  administrative"  expenses  to offset  gains or losses on  foreign  currency
receivables and payables.  As of June 30, 1998, however, the Company had no such
currency hedging instruments outstanding.

<PAGE>

         In connection with the Bard Cath Lab  Acquisition,  the Company expects
to enter into a bank credit  agreement for $600 million in senior secured credit
facilities,  of which $200 million  would be  five-year  term loans (the "Term A
Loans"),  $350 million would be six-year term loans (the "Term B Loans") and $50
million would be a five-year  revolving credit facility (the "Revolving Loans").
The term loans are expected to amortize and be prepayable  at any time,  subject
to customary breakage  provisions.  Initial interest rates are expected to be at
the higher of the  London  InterBank  Offered  Rate  ("LIBOR")  plus 2.00% or an
agreed pricing grid for the Term A Loans and the Revolving Facilities and at the
higher of LIBOR plus 2.25% or an agreed  pricing grid for the Term B Loans.  The
Term A Loans,  the Term B Loans and the  Revolving  Loans  outstanding  would be
reduced by certain mandatory prepayments, including (i) 100% of the net proceeds
from  debt  issuances,  subject  to  certain  exceptions,  (ii)  100% of the net
proceeds from extraordinary asset sales,  subject to certain  exceptions,  (iii)
50% of the first $200  million of the net cash  proceeds  from any  issuances of
equity  securities  of the Company and 50% of any further net cash proceeds from
issuances  of equity  securities  of the Company if the  Company's  then current
leverage  ratio exceeds 2.5, and (iv) 50% of the Company's  consolidated  annual
excess cash flow if the Company's  then current  leverage ratio exceeds 2.5. The
bank credit  agreement is expected to contain  restrictive  financial  covenants
relating to a maximum leverage ratio, a minimum fixed charge coverage ratio, and
a minimum net worth of the Company. The bank credit agreement would also contain
customary negative  covenants,  including  restrictions on (i) the incurrence of
additional debt, (ii) payment of restricted payments, (iii) liens, (iv) sales of
assets, (v) acquisitions,  mergers or similar  combinations,  (vii) transactions
with  affiliates,  and (viii)  capital  expenditures.  The senior secured credit
facilities are expected to be secured by substantially  all the operating assets
of the Company  and its  subsidiaries  and a pledge of the capital  stock of the
Company's material  subsidiaries,  including a subsidiary to be formed that will
hold a substantial portion of the assets acquired from Bard.


         The Company's high degree of leverage could have important consequences
to the stockholders of the Company,  including the following:  (i) the Company's
ability  to  obtain   additional   financing   for  working   capital,   capital
expenditures,  acquisitions, general corporate purposes or other purposes may be
impaired in the future;  (ii) a substantial  portion of the Company's  cash flow
from  operations  must be dedicated to the payment of principal  and interest on
its indebtedness,  thereby reducing the funds available to the Company for other
purposes;  (iii) the  Company's  borrowings  under such  senior  secured  credit
facilities will be at variable rates of interest,  which will expose the Company
to the risk of increased interest rates; (iv) the indebtedness outstanding under
the senior secured  credit  facilities  will be secured;  (v) the Company may be
substantially  more leveraged than certain of its  competitors,  which may place
the Company at a competitive  disadvantage;  and (vi) the Company's  substantial
degree of  leverage  may  limit its  flexibility  to adjust to  changing  market
conditions,  reduce its ability to withstand  competitive  pressures and make it
more vulnerable to a downturn in general economic conditions or businesses.

         The  Company  is  expected  to  incur  substantial   additional  costs,
including  costs relating to capital  equipment and other costs  associated with
expansion  of the  Company's  manufacturing  capabilities,  increased  sales and
marketing  activities  (including  the  establishment  of  direct  sales  forces
internationally),   and  increased  research  and  development  expenditures  in
connection with seeking regulatory approvals and conducting  additional clinical
trials.  The Company also intends to expand its  operations  by promoting new or
complementary  products  and by  expanding  the breadth and depth of its product
offerings,  and may do so by entering into business combinations,  acquisitions,
investments, joint ventures or other strategic alliances with third parties. The
Company may require  additional  equity or debt financing to address its working
capital needs, to provide  funding for capital  expenditures in the future or to
finance  any  such  acquisitions  or  strategic  alliances.   Furthermore,   any
additional equity financing may be dilutive to stockholders, and debt financing,
if available,  may involve restrictive  covenants and may increase the Company's
leverage.  There can be no assurance  that events in the future will not require
the  Company to seek  additional  capital  or, if so  required,  that it will be
available on terms acceptable to the Company.


<PAGE>

                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K

(a) The following documents are filed as part of this Form 10-K/A:


      (3)  Exhibits

Exhibit
 Number                          Description of Document
 ------                          -----------------------
 23.1*   Consent of Ernst & Young LLP, Independent Auditors.

-------------
*        Filed herewith.


<PAGE>

                                   SIGNATURES

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

                       ARTERIAL VASCULAR ENGINEERING, INC.



Date:  November 9, 1998             /s/ Scott J. Solano
                                    -------------------------------------
                                    Scott J. Solano
                                    President, Chief Executive Officer and
                                    Chairman of the Board of Directors


Date:  November 9, 1998             /s/ Scott J. Solano
                                    -------------------------------------------
                                    Scott J. Solano
                                    President, Chief Executive Officer and
                                    Chairman of the Board of Directors
                                    (Principal Executive Officer)



Date:  November 9, 1998             /s/ John D. Miller
                                    -------------------------------------------
                                    John D. Miller
                                    Chief Financial Officer, Treasurer
                                    and Director
                                    (Principal Financial and Accounting Officer)



Date:  November 9, 1998             /s/ Craig E. Dauchy*
                                    -------------------------------------------
                                    Craig E. Dauchy
                                    Director



Date:  November 9, 1998             /s/ George B. Borkow*
                                    -------------------------------------------
                                    George B. Borkow
                                    Director

*By:   /s/ John D. Miller
       ------------------------
       John D. Miller
       Attorney-in-Fact