UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)

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


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

		For the quarterly period ended April 4, 2010

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

		For the transition period from _________ to _________.

For the quarterly period ended October 4, 2009

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.

(Exact name of registrant as specified in its charter)


Delaware		32-0138874
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)

~~9600~~3033 ~~54th~~Campus ~~Avenue North, Suite 100~~Drive Plymouth, Minnesota ~~55442~~55441 (Address of principal executive offices)

(763) 398-7000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES þ x NO o

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). YES o NO o

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 the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act). ~~(Check one):~~

Large accelerated filer ox Accelerated filer þo Non-accelerated filer ~~o Smaller reporting company o~~ (Do not check if smaller reporting company) o Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o NO þx

As of ~~October~~April 2928, ~~2009~~2010, there were ~~112~~113,~~254~~181,~~796~~212 shares of common stock, par value $0.01 per share, of of the registrant outstanding.

ev3 Inc. ~~FORM 10-Q~~ ~~For the Quarterly Period Ended October 4, 2009~~

FORM 10-Q

For the Quarterly Period Ended April 4, 2010

TABLE OF CONTENTS

Description		Page
PART I.	FINANCIAL INFORMATION
ITEM 1.	Financial Statements
	Consolidated Balance Sheets as of October 4, 2009 and December 31, 2008 (unaudited)		1
	Consolidated Balance Sheets as of April 4, 2010 and December 31, 2009 (unaudited)		1
	Consolidated Statements of Operations for the three and nine months ended October 4, 2009 and September 28, 2008 (unaudited)		2
	Consolidated Statements of Operations for the three months ended April 4, 2010 and April 5, 2009 (unaudited)		2
	Consolidated Statements of Cash Flows for the nine months ended October 4, 2009 and September 28, 2008 (unaudited)		3
	Consolidated Statements of Cash Flows for the three months ended April 4, 2010 and April 5, 2009 (unaudited)		3
	Notes to the Consolidated Financial Statements		4
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		1914
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk		3526
ITEM 4.	Controls and Procedures		3627
PART II.	OTHER INFORMATION
ITEM 1.	Legal Proceedings		3728
ITEM 1A.	Risk Factors		3728
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds		3828
ITEM 3.	Defaults Upon Senior Securities		3829
ITEM 4.	~~Submission~~[Removed ofand ~~Matters to a Vote of Security Holders~~Reserved]		3829
ITEM 5.	Other Information		3829
ITEM 6.	Exhibits		3930
SIGNATURE PAGE			4031
Exhibit Index			4132
EX-10.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2

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 this report, unless the ~~context~~ 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.


PART I.		FINANCIAL INFORMATION


ITEM I.		FINANCIAL STATEMENTS

ev3 Inc.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share amounts)

(unaudited)

	October 4,			December 31,
	April 4,			December 31,
	2009			2008
	2010			2009
Assets
Current assets
Cash and cash equivalents	$	80116,~~504~~801		$	5998,~~652~~050
Accounts receivable, less allowances of $8,585 and $8,098, respectively		79,320			72,814
Accounts receivable, less allowance of $6,843 and $7,260, respectively		87,454			90,711
Inventories, net		4546,~~834~~138			4745,~~687~~054
Prepaid expenses and other current assets		6,630			6,970
Prepaid expenses and other assets		9,736			6,645
Total current assets		~~212~~260,~~288~~129			~~187~~240,~~123~~460
Restricted cash		34,~~581~~187			14,~~531~~346
Property and equipment, net		2627,~~439~~909			3029,~~681~~159
Goodwill		367,~~311~~575			~~315~~367,~~654~~486
Intangible assets, net		~~261~~248,~~710~~473			~~185~~254,~~292~~288
Other assets		~~581~~509			~~383~~550
Total assets	$	~~871~~908,~~910~~782		$	~~720~~896,~~664~~289
Liabilities and stockholders’ equity
Current liabilities
Current portion of long-term debt	$	2,500		$	2,500
Accounts payable		1814,~~590~~375			1516,~~657~~737
Accrued compensation and benefits		2824,~~657~~662			2932,~~547~~239
Accrued liabilities		2224,~~295~~892			1922,~~744~~453
Total current liabilities		7266,~~042~~429			6773,~~448~~929
Long-term debt		43,~~583~~333			63,~~458~~958
Other long-term liabilities		5866,~~083~~425			663,~~217~~908
Total liabilities		~~134~~136,~~708~~187			80141,~~123~~795
Stockholders’ equity
Preferred stock, $0.01 par value, 100,000,000 shares authorized, none issued and outstanding as of October 4, 2009 and December 31, 2008		—			—
Preferred stock, $0.01 par value, 100,000,000 shares authorized, none issued and outstanding as of April 4, 2010 and December 31, 2009		—			—
Common stock, $0.01 par value, 300,000,000 shares authorized, shares issued and outstanding: 112,182,735 shares at October 4, 2009 and 105,822,444 at December 31, 2008		1,122			1,058
Common stock, $0.01 par value, 300,000,000 shares authorized, 112,956,788 and 112,345,500 shares issued and outstanding as of April 4, 2010 and December 31, 2009, respectively		1,130			1,123
Additional paid-in capital		1,~~824~~836,~~406~~789			1,~~756~~828,~~832~~655
Accumulated deficit		(1,~~087~~064,~~745~~880	)		(1,~~116~~074,~~661~~744	)
Accumulated other comprehensive loss		(~~581~~444	)		(~~688~~540	)
Total stockholders’ equity		~~737~~772,~~202~~595			~~640~~754,~~541~~494
Total liabilities and stockholders’ equity	$	~~871~~908,~~910~~782		$	~~720~~896,~~664~~289

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

ev3 Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS ~~(Dollars in thousands, except per share amounts) (unaudited)~~

	Three Months Ended						Nine Months Ended
	October 4, 2009			September 28, 2008			October 4, 2009			September 28, 2008
Sales:
Net product sales	$	112,838		$	100,018		$	322,319		$	296,577
Research collaboration		—			7,011			—			19,426
Net sales		112,838			107,029			322,319			316,003
Operating expenses:
Product cost of goods sold		28,608			36,182			90,074			102,442
Research collaboration		—			2,100			—			5,647
Sales, general and administrative		55,030			53,121			165,639			178,885
Research and development		12,545			12,133			36,433			37,913
Amortization of intangible assets		6,802			8,101			18,444			24,285
Contingent consideration		2,271			—			2,467			—
Intangible asset impairment		—			—			—			10,459
Total operating expenses		105,256			111,637			313,057			359,631
Income (loss) from operations		7,582			(4,608	)		9,262			(43,628	)
Other expense (income):
Gain on investments, net		—			(142	)		(4,072	)		(542	)
Interest expense (income), net		140			49			575			(307	)
Other (income) expense, net		(143	)		2,279			1,354			192
Income (loss) before income taxes		7,585			(6,794	)		11,405			(42,971	)
Income tax expense (benefit)		849			516			(17,511	)		1,531
Net income (loss)	$	6,736		$	(7,310	)	$	28,916		$	(44,502	)
Earnings per share:
Net income (loss) per common share:
Basic	$	0.06		$	(0.07	)	$	0.27		$	(0.43	)
Diluted	$	0.06		$	(0.07	)	$	0.27		$	(0.43	)
Weighted average shares outstanding:
Basic		110,507,687			104,474,600			107,080,500			104,276,029
Diluted		112,277,954			104,474,600			107,719,897			104,276,029

(Dollars in thousands, except per share amounts)

(unaudited)


	Three Months Ended
	April 4, 2010			April 5, 2009

Net sales	$	123,854		$	100,395

Operating expenses:
Cost of goods sold		29,227			30,988
Sales, general and administrative		61,827			55,648
Research and development		13,839			11,578
Amortization of intangible assets		6,656			5,828
Contingent consideration		2,498			—

Total operating expenses		114,047			104,042
Income (loss) from operations		9,807			(3,647	)

Other expense (income):
Gain on investments, net		—			(4,067	)
Interest expense, net		197			213
Other expense, net		354			2,208

Income (loss) before income taxes		9,256			(2,001	)

Income tax benefit		(608	)		(192	)


Net income (loss)	$	9,864		$	(1,809	)


Earnings per share:

Net income (loss) per common share:

Basic	$	0.09		$	(0.02	)


Diluted	$	0.09		$	(0.02	)


Weighted average common shares outstanding:
Basic		112,674,997			105,030,020


Diluted		114,386,308			105,030,020

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

ev3 Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS ~~(Dollars in thousands) (unaudited)~~

	Nine Months Ended
	October 4, 2009			September 28, 2008
Operating activities
Net income (loss)	$	28,916		$	(44,502	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		26,873			33,016
Contingent consideration		2,467			—
Provision for bad debts and sales returns		268			1,840
Provision for inventory obsolescence		7,731			7,304
Gain on sale or disposal of investments and assets, net		(4,045	)		(426	)
Stock-based compensation expense		10,949			11,682
Intangible asset impairment		—			10,459
Deferred income taxes		(18,998	)		—
Change in operating assets and liabilities, net of acquired:
Accounts receivable		(5,852	)		(8,550	)
Inventories		(5,326	)		(832	)
Prepaid expenses and other assets		633			(194	)
Accounts payable		812			(3,431	)
Accrued expenses and other liabilities		2,939			(27,822	)
Deferred revenue		—			(9,043	)
Net cash provided by (used in) operating activities		47,367			(30,499	)
Investing activities
Proceeds from investments		4,118			9,744
Purchase of investments		(300	)		—
Purchase of property and equipment		(3,766	)		(9,032	)
Purchase of patents and licenses		(1,792	)		(2,250	)
Proceeds from sale of assets		—			1,061
Acquisitions, net of cash acquired		(24,735	)		(7,627	)
Change in restricted cash		(1,969	)		771
Net cash used in investing activities		(28,444	)		(7,333	)
Financing activities
Proceeds from issuance of debt		—			10,000
Payments on long-term debt and capital lease obligations		(2,008	)		(10,534	)
Debt issuance costs		—			180
Proceeds from exercise of stock options		1,470			1,272
Proceeds from employee stock purchase plan		2,099			1,903
Other		(9	)		(341	)
Net cash provided by financing activities		1,552			2,480
Effect of exchange rate changes on cash		377			239
Net increase (decrease) in cash and cash equivalents		20,852			(35,113	)
Cash and cash equivalents, beginning of period		59,652			81,060
Cash and cash equivalents, end of period	$	80,504		$	45,947

(Dollars in thousands)

(unaudited)


	Three Months Ended
	April 4, 2010			April 5, 2009
Operating activities
Net income (loss)	$	9,864		$	(1,809	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		9,188			8,628
Contingent consideration		2,498			—
Provision for bad debts and sales returns		(293	)		(321	)
Provision for inventory obsolescence		987			1,148
Gain on sale or disposal of investments and assets, net		(4	)		(4,067	)
Stock compensation expense		3,314			3,711
Change in operating assets and liabilities, net of acquired:
Accounts receivable		3,594			277
Inventories		(2,072	)		795
Prepaid expenses and other assets		(3,265	)		21
Accounts payable		(2,022	)		2,060
Accrued expenses and other liabilities		(4,482	)		(3,990	)


Net cash provided by operating activities		17,307			6,453

Investing activities
Purchase of property and equipment		(1,360	)		(732	)
Purchase of patents and licenses		(841	)		(681	)
Proceeds from sale of assets		24			—
Proceeds from sale of investments		—			4,081
Change in restricted cash		(85	)		(1,440	)


Net cash (used in) provided by investing activities		(2,262	)		1,228
Financing activities
Payments on long-term debt and capital lease obligations		(625	)		(668	)
Proceeds from exercise of stock options		4,830			347
Proceeds from employee stock purchase plan		—			884
Other		(3	)		—


Net cash provided by financing activities		4,202			563
Effect of exchange rate changes on cash		(496	)		(982	)


Net increase in cash and cash equivalents		18,751			7,262
Cash and cash equivalents, beginning of period		98,050			59,652


Cash and cash equivalents, end of period	$	116,801		$	66,914

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

ev3 Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.		Description of Business

ev3 Inc. (~~the~~ “~~Company,” “~~we,” “our” or “us”) is a global endovascular company focused on identifying and treating peripheral vascular disease, including, in particular, lower extremity arterial disease and neurovascular disease. We develop, manufacture and market a wide range of products that include ~~stents, atherectomy~~ plaque excision, ~~products~~stents, ~~thrombectomy and~~ embolic ~~protection~~ ~~devices~~protection, percutaneous transluminal angioplasty (“PTA”) balloons and other procedural support products for the peripheral vascular market and embolic coils, ~~liquid embolics,~~ flow diversion and flow restoration devices, liquid embolics, flow directed and other micro catheters, occlusion balloon systems, ~~and~~guidewires, neuro stents and retrieval devices for the neurovascular market. We market our products in the United States, Europe, Canada , Australia and other countries through a direct sales force and through distributors in certain other international markets.


2.		Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared ~~by us~~ in accordance ~~with~~ with accounting principles generally accepted in the United States of America (“U.S.”) for interim financial information and pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal, recurring adjustments) considered necessary for a fair presentation have been included. The results of operations for any interim period may not be indicative of results for the full year. These unaudited consolidated financial statements and notes should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our annual report on Form 10-K for the year ended December 31, ~~2008~~2009.

Certain amounts reported in our consolidated financial statements for the previous reporting periods have been reclassified to conform to the current period presentation.

~~Our~~We ~~consolidated~~operate ~~financial~~on ~~statements~~a ~~include~~manufacturing ~~the~~calendar ~~financial~~with ~~results~~our offiscal ~~Chestnut~~year ~~Medical~~ending on December 31. Each quarter is ~~Technologies~~13 weeks, ~~Inc.~~consisting ~~(“Chestnut”)~~of ~~subsequent~~one tofive-week and two four-week periods. Accordingly, the ~~acquisition~~first ~~date~~fiscal quarters of ~~June~~2010 and 2009 ended on April 4 and April 235, ~~2009~~respectively.

WeNew ~~operate~~Accounting ~~on a manufacturing calendar with our fiscal year ending on December 31. Each quarter is~~Pronouncements ~~13 weeks, consisting of one five-week and two four-week periods. Accordingly, the third quarters of 2009 and 2008 ended on October 4 and September 28, respectively.~~

WeIn ~~have~~January 2010, ~~evaluated~~the ~~all~~Financial ~~subsequent~~Accounting ~~events~~Standards ~~through~~Board ~~November 3~~(“FASB”) issued guidance on improving disclosures about fair value measurement, ~~2009~~Accounting Standards Update (“ASU”) 2010-6, ~~the~~which ~~date~~amends Accounting Standards Codification (“ASC”) 820 to add new requirements for disclosures about transfers into and out of Level 1 and 2 and separate disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurements. We adopted ASU 2010-6 in the ~~financial~~first ~~statements~~quarter of ~~were~~2010. ~~issued~~The implementation of ASU 2010-6 did not have a material impact on our consolidated financial statements.

~~Critical~~In ~~Accounting~~February 2010, ~~Policies~~the FASB issued guidance on subsequent events contained in ASU 2010-09, which amends ASC 855, to address certain implementation issues related to an entity’s requirement to perform and ~~Estimates~~disclose subsequent event procedures. Although we are still required to evaluate subsequent events through the date the financial statements are issued, the pronouncement exempts SEC filers from disclosing the date through which subsequent events have been evaluated. We adopted ASU 2010-09 in the first quarter of 2010. The implementation of ASU 2010-09 did not have a material impact on our consolidated financial statements.

Except for the contingent consideration and forward foreign currency contracts policies as noted below, there have been no material changes to our critical accounting policies and estimates as described in Note 2 to our consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2008.

Contingent Consideration

Contingent consideration is recorded at the acquisition-date estimated fair value of the contingent milestone payment for all acquisitions subsequent to January 1, 2009. The fair value of the contingent milestone consideration is remeasured at the estimated fair value at each reporting period with the change in fair value included in our consolidated statements of operations.

~~Forward~~3. ~~Foreign~~Stock-Based ~~Currency Contracts~~ Compensation

WeThe ~~use~~following ~~forward~~table ~~foreign~~presents ~~currency contracts to hedge~~ the ~~volatility~~stock-based ofcompensation ~~foreign currency rates for foreign cash balances and accounts receivable for which payment is settled~~ (in athousands) currency other than our local operations’ functional currency. We did not have any forward foreign currency contracts outstanding at the end of the third quarter of 2009 or at the end of fiscal year 2008. During the three and nine months ended October 4, 2009, we recorded ~~$1.5 million and $3.1 million of losses, respectively, as “Other (income) expense, net”~~ in our unaudited consolidated statements of operations ~~associated~~ ~~with~~for the ~~settlement~~three ofmonths ~~our foreign currency contracts.~~ended:

New Accounting Pronouncements


Stock-Based Compensation Charges:	April 4, 2010		April 5, 2009
Cost of goods sold	$	142	$	245
Sales, general and administrative		2,864		3,098
Research and development		308		368

Total stock-based compensation charges	$	3,314	$	3,711

In the ~~third~~three ~~quarter~~months ofended ~~2009~~April 4, 2010, we ~~adopted~~granted ~~the~~options ~~Financial~~to ~~Accounting~~purchase ~~Standards~~an ~~Board’s~~aggregate ~~(“FASB”)~~of 233,000 ~~Accounting~~shares ~~Standards~~of ~~Codification~~our ~~(“ASC”)~~common ~~Topic~~stock, ~~105~~125,000 asshares ~~the~~of ~~single~~restricted ~~official~~stock ~~source~~and 8,000 restricted stock units at a weighted average fair value of ~~authoritative~~$5.94, ~~nongovernmental~~ ~~generally~~$14.30 ~~accepted~~and ~~accounting~~$15.52 ~~principles~~per inshare, respectively, to be recognized on a straight-line basis over the ~~United~~requisite ~~States.~~service Onperiod, which, for the ~~effective~~substantial majority of ~~date~~these grants, ~~all~~is ~~then-existing~~four ~~non-SEC~~years. ~~accounting~~As ~~literature~~of ~~and~~April 4, ~~reporting~~2010, ~~standards~~we ~~were~~had ~~superseded~~outstanding ~~and~~options to purchase an ~~deemed~~aggregate ~~nonauthoritative~~of 9.1 million ~~The~~shares ~~adoption~~ of ~~this~~our ~~pronouncement~~common ~~did~~stock, ~~not~~of ~~have~~which aoptions ~~material~~to ~~impact~~purchase onan ~~our~~aggregate of ~~consolidated~~5.8 million ~~financial~~shares ~~statements;~~were ~~however,~~exercisable. ~~the~~In ~~ASC~~addition, ~~affected~~we ~~the~~have ~~way~~1.3 million weshares ~~reference~~of ~~authoritative~~restricted stock ~~guidance~~and in218,000 ~~our~~restricted ~~consolidated~~stock ~~financial~~units ~~statements~~outstanding as of April 4, 2010.

InWe ~~December~~had $32.2 ~~2007,~~million ~~the~~of ~~FASB~~total ~~issued~~unrecognized ~~additional~~compensation ~~guidance~~cost onrelated ~~business~~to ~~combinations~~unvested ~~contained in ASC~~stock-based ~~Topic~~compensation ~~805~~arrangements ~~(“ASC~~granted ~~Topic~~to ~~805”)~~employees ~~and~~as ~~additional~~of ~~guidance on noncontrolling interests in consolidated financial statements contained in ASC Topic 810, which are effective for fiscal years beginning after December~~April 154, ~~2008~~2010. ~~These~~That ~~new~~cost ~~standards~~is ~~represent~~expected ~~the completion of the FASB’s first major joint project with the International Accounting Standards Board and are intended~~ to ~~improve,~~be ~~simplify~~recognized ~~and~~over ~~converge~~a ~~internationally~~weighted-average ~~the~~period ~~accounting for business combinations and the reporting~~ of ~~noncontrolling~~ ~~interests (formerly minority interests) in consolidated financial statements~~2.29 years.

~~ASC~~In ~~Topic 805 changes~~ the ~~method~~three ~~for~~months ~~applying~~ended ~~the~~April 4, ~~acquisition method in a number of significant respects~~2010, ~~including~~we ~~the~~issued ~~requirement to expense transaction fees and expected restructuring costs as incurred~~487,000 ~~rather~~shares ~~than including these amounts in the allocated purchase price; the requirement to recognize the fair value~~ of ~~contingent~~common ~~consideration~~stock atupon ~~the~~exercise ~~acquisition date, rather than the expected amount when the contingency is resolved; the requirement to recognize the fair value~~ of ~~acquired~~options, ~~in-process research and development assets at the acquisition date~~21,000 ~~rather~~shares ~~than immediately~~from ~~expensing;~~restricted ~~and~~stock ~~the requirement to recognize a gain in relation to a bargain purchase price~~vesting, ~~rather than reducing the allocated basis of long-lived assets. We adopted these standards at the beginning of our 2009 fiscal year. The new presentation~~ and ~~disclosure~~no ~~requirements~~shares ~~for pre-existing~~under ~~non-controlling interests are retrospectively applied to all prior period financial information presented. See Note 5 for further discussion of~~ the ~~impact~~employee ~~the adoption of ASC Topic~~stock ~~805~~purchase ~~had on our results of operations and financial conditions as a result of our Chestnut acquisition in the second quarter 2009~~plan.

~~In May 2009, the FASB issued additional guidance on management’s assessment of subsequent events~~4. ~~This~~ ~~guidance~~Chestnut is contained in ASC Topic 855 (“ASC Topic 855”) and clarifies that management must evaluate, as of each reporting period, events or transactions that occur for potential recognition or disclosure in the financial statements and the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date through the date that the financial statements are issued or are available to be issued. ASC Topic 855 requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date. This disclosure alerts all users of financial statements that an entity has not evaluated subsequent events after that date in the set of financial statements being presented. We adopted ASC Topic 855 for the three months ended July 5, 2009. The implementation of ASC Topic 855 did not have a material impact on our consolidated financial statements. Acquisition

InOn ~~April~~June ~~2008~~23, ~~the~~2009, ~~FASB~~we ~~issued~~acquired ~~guidance~~Chestnut onMedical ~~the determination of the useful life of intangible assets~~Technologies, Inc. (“~~ASC Topic 350-30-35-1~~Chestnut”), ~~which~~a ~~amended~~then ~~the factors considered in developing renewal or~~privately ~~extension~~held, ~~assumptions~~California-based ~~used~~company tofocused ~~determine~~on ~~the~~developing ~~useful~~minimally ~~life~~invasive oftherapies ~~recognized~~for interventional ~~intangible assets~~neuroradiology. ~~ASC~~The ~~Topic 350-30-35-1~~transaction ~~requires~~broadened aour ~~consistent~~neurovascular ~~approach~~product ~~between~~portfolio ~~the useful life of a recognized intangible asset~~by ~~and~~adding the ~~period~~Pipeline ofEmbolization ~~expected~~Device ~~cash~~for ~~flows used to measure~~ the ~~fair~~treatment ~~value~~ of ancerebral ~~asset.~~aneurysms ~~The~~and ~~ASC~~the ~~Topic~~Alligator ~~350-30-35-1~~Retrieval ~~also~~Device ~~requires~~for ~~enhanced~~foreign ~~disclosure~~body ~~when~~retrieval anto ~~intangible~~our ~~asset’s~~existing ~~expected~~neurovascular ~~future~~embolic ~~cash~~products ~~flows~~and ~~are~~stents ~~affected by an entity’s intent~~ and~~/or~~ ~~ability~~neuro toaccess ~~renew or extend the arrangement~~technologies. ~~We adopted~~ ~~ASC Topic 350-30-35-1 as of January 1, 2009. The adoption did not have a significant impact on our consolidated financial statements.~~

We acquired 100 percent of the equity interests of Chestnut for total consideration valued at $116.7 million, consisting of upfront consideration of common stock and cash valued at $79.4 million, as well as an additional milestone-based contingent payment of up to $75.0 million, payable in a combination of common stock and equity, upon the U.S. Food and Drug Administration (“FDA”) pre-market approval of the Pipeline Embolization Device.

The transaction has been accounted for under the acquisition method. Our consolidated financial statements include the financial results of Chestnut subsequent to the acquisition date of June 23, 2009.

The following table presents the purchase price consideration (in thousands) for the acquisition:


Equity consideration	$	53,186
Cash consideration		26,240

Total cash and equity		79,426
Contingent consideration		37,275

Total purchase price consideration	$	116,701

We issued 5,060,510 shares of our common stock, with an estimated fair value of $53.2 million. The estimated fair value per share of common stock of $10.51 was based on the closing price of our common stock on June 23, 2009, the date of the acquisition. The cash consideration, net of cash acquired, was approximately $24.7 million. We have also incurred $1.0 million in direct acquisition costs which were expensed as incurred.

In addition, we have agreed to pay the former shareholders an additional milestone-based payment of cash and equity upon the FDA pre-market approval of the Pipeline Embolization Device. This milestone-based contingent payment could range from: (1) $75.0 million upon FDA approval prior to October 1, 2011, (2) $75.0 million less $3.75 million ~~Fair~~per ~~Value~~month ~~Measurements~~upon FDA approval from October 1, 2011 through December 31, 2012 and (3) no payment required if FDA approval is not obtained by December 31, 2012. The milestone-based payment of up to $75.0 million will consist of cash and equity paid in the form of shares of our common stock ranging from 30% cash and 70% equity to 85% cash and 15% equity. We have recorded the acquisition-date estimated fair value of the contingent milestone payment of $37.3 million as a component of the consideration transferred in exchange for the equity interests of Chestnut. The acquisition-date fair value was measured based on the probability-adjusted present value of the consideration expected to be transferred, discounted at 26%, the weighted average cost of capital for the Chestnut transaction. The fair value of the contingent milestone payment was remeasured as of April 4, 2010 at $44.6 million and is reflected in “Other long-term liabilities” in our consolidated balance sheets. The change in fair value of $2.5 million for the three months ended April 4, 2010 is reflected as “Contingent consideration” in our consolidated statements of operations.

The following table summarizes the preliminary amounts (in thousands) recognized on the acquisition date as part of the acquisition of Chestnut:


Intangible assets	$	93,070
Tangible assets acquired, net of liabilities assumed		733
Deferred tax liabilities acquired, net		(29,323	)
Goodwill		52,221

Estimated fair value of net assets acquired	$	116,701

In connection with the Chestnut acquisition, we recorded deferred tax liabilities of $29.3 million, which includes $19.0 million related to amortizable intangible assets and $10.3 million related to indefinite-lived acquired in-process research and development. For additional discussion regarding deferred tax liabilities, see Note 11.

The following table presents the preliminary allocation of the purchase consideration to identifiable intangible assets acquired, excluding goodwill and the weighted average amortization period in total and by major intangible asset class (in thousands):


			Weighted Average
			Amortization
			Period
Intangible Asset Description	Fair Value Assigned		(in years)
Developed and core technology	$	64,130		12
Customer and distributor relationships		220		3
Trademarks and tradenames		960		5
Non-compete agreements		360		3

Total amortizable intangible assets acquired		65,670		11
Acquired in-process research and development		27,400	Indefinite

Total intangible assets acquired (excluding goodwill)	$	93,070

The acquired in-process research and development asset relates primarily to the Pipeline Embolization Device, which is a new class of embolization device that is designed to divert blood flow away from an aneurysm in order to provide a complete and durable aneurysm embolization while maintaining patency of the parent vessel. This asset is recognized and measured at the estimated fair value at the date of acquisition. As of the date of the acquisition, the in-process project had not yet reached technological feasibility in the United States and had no alternative use. The primary basis for determining technological feasibility of the project in the United States is obtaining FDA regulatory approval to market the device.

The income approach was used to determine the fair value of the acquired in-process research and development asset. This approach measures fair value by estimating the after-tax cash flows attributable to the in-process project over its useful life on a discounted basis. The costs to complete each project were based on estimated direct project expenses as

well as the remaining labor hours and related overhead costs. In arriving at the value of the acquired in-process research and development project, we considered the project’s stage of completion, the complexity of the work to be completed, the costs already incurred, the remaining costs to complete the project, the contribution of core technologies, the expected introduction date and the estimated useful life of the technology. We expect to incur approximately $7.0 million of development expense to obtain the regulatory approval required to commercialize the Pipeline Embolization Device in the United States. The discount rate used to arrive at the present value of acquired in-process research and development as of the date of the acquisition was approximately 27% and was based on the time value of money and medical technology investment risk factors.

The value attributable to this project, which had not yet obtained regulatory approval in the United States, has been capitalized as an indefinite-lived intangible asset. Development costs incurred on this project after the acquisition are charged to expense as incurred. If the project is not successful, or completed in a timely manner, we may not realize the financial benefit expected from this project. Upon completion of development and the obtaining of regulatory approval in the United States, this asset will become an amortizable intangible asset.

Tangible assets acquired, net of liabilities assumed, were stated at fair value at the date of the acquisition based on management’s assessment.


5.		Fair Value Measurements

The fair value of assets and liabilities is determined on the exchange price which would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. The determination of fair value is based upon a three-tier fair value hierarchy, which prioritizes the inputs used in fair value measurements. The three-tier hierarchy for inputs used in measuring fair value is as follows:

• 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.

•

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

As of ~~October~~April 4, ~~2009~~2010 and December 31, ~~2008~~2009, we held approximately $5180.95 million and $4555.64 million, respectively, in money market accounts measured at fair value on a recurring basis using Level 1 inputs. Our money market accounts are reflected as “Cash and cash equivalents” in our consolidated balance sheets.

In ~~the second quarter of 2009, in~~ connection with our 2009 acquisition of Chestnut, we entered into an agreement to pay a contingent milestone-based payment of cash and equity upon the ~~U.S. Food and Drug Administration (“~~FDA”) pre-market approval of the Pipeline Embolization Device ~~(“Pipeline”)~~. We ~~have~~ recorded the acquisition-date estimated fair value of the contingent milestone payment of $37.3 million as a component of the consideration transferred in exchange for the equity interests of Chestnut ~~using Level 3 inputs~~. ~~The~~We ~~acquisition-date fair value was~~ measured ~~based on~~ the ~~probability-adjusted~~ ~~present~~initial ~~value of the~~ amount ~~expected~~and toremeasure ~~be paid. The probability adjusted contingent consideration amounts were discounted at 26%,~~ the ~~weighted average cost of capital for the Chestnut transaction.~~ Weliability ~~remeasure the fair value of the contingent milestone payment at~~ each reporting period using Level 3 inputs. ~~The~~For ~~fair~~additional ~~value~~discussion ofregarding the ~~contingent milestone payment was $39.7 million as of October~~ 4,valuation ~~2009 and is reflected in “Other long-term liabilities” in our consolidated balance sheets. The change in fair value~~ of ~~the~~ contingent ~~milestone payment for the three and nine months ended October 4~~consideration, ~~2009~~see ~~was~~Note $24.~~3 million and $2.5 million, respectively, and is reflected as “Contingent~~ ~~consideration” in our consolidated statements of operations.~~

The following table presents a summary of the contingent consideration long-term liability and activity (in thousands) for the periods presented:

	Three Months Ended		Nine Months Ended
Balance as of December 31, 2009	$	42,151
Contingent Consideration:	October 4, 2009		October 4, 2009
Change in fair value of contingent consideration		2,498
Balance at Beginning of Period	$	37,471	$	—
Balance as of April 4, 2010	$	44,649
Purchase price contingent consideration		—		37,275
Change in fair value of contingent consideration		2,271		2,467
Balance as of October 4, 2009	$	39,742	$	39,742

4. Stock-Based Compensation

The following table presents the stock-based compensation expense (in thousands) recorded in our consolidated statements of operations for the periods presented:

Stock-Based Compensation Expense:	Three Months Ended				Nine Months Ended
	October 4, 2009		September 28, 2008		October 4, 2009		September 28, 2008
Product cost of goods sold	$	251	$	121	$	732	$	596
Sales, general and administrative		2,975		2,572		9,089		9,608
Research and development		400		366		1,128		1,478
Total stock-based compensation expense	$	3,626	$	3,059	$	10,949	$	11,682

In the nine months ended October 4, 2009, we granted options to purchase an aggregate of 1.9 million shares of our common stock, 756,000 shares of restricted stock and 91,000 restricted stock units at a weighted average fair value of $2.76, $6.73 and $5.93 per share, respectively, to be recognized on a straight-line basis over the requisite service period, which, for the substantial majority of these grants, is four years. As of October 4, 2009, we had outstanding options to purchase an aggregate of 9.7 million shares of our common stock, of which options to purchase an aggregate of 5.7 million shares were exercisable. In addition, we have 1.6 million shares of restricted stock and 292,000 restricted stock units outstanding as of October 4, 2009.

We had $31.2 million of total unrecognized compensation cost related to unvested stock-based compensation arrangements granted to employees as of October 4, 2009. That cost is expected to be recognized over a weighted-average period of 2.52 years.

In the nine months ended October 4, 2009, we issued 205,000 shares of common stock upon exercise of options, 695,000 shares from restricted stock grants, net of cancellations and repurchases, and 401,000 shares under our employee stock purchase plan.

5. Chestnut Medical Acquisition

On June 23, 2009, we acquired Chestnut Medical Technologies, Inc., a privately held, California-based company focused on developing minimally invasive therapies for interventional neuroradiology. The transaction broadens our neurovascular product portfolio by adding the Pipeline Embolization Device for the treatment of cerebral aneurysms and the Alligator Retrieval Device for foreign body retrieval to our existing neurovascular embolic products and neuro access technologies.

We acquired 100 percent of the equity interests of Chestnut for total consideration valued at $116.7 million, consisting of upfront consideration of common stock and cash, as well as an additional milestone-based contingent payment of up to $75.0 million, payable in a combination of common stock and equity, upon FDA pre-market approval of the Pipeline device.

The following table presents the purchase price (in thousands) for the acquisition:

	Purchase Price Consideration
Equity consideration	$	53,186
Cash consideration		26,240
Total cash and equity	$	79,426
Contingent consideration		37,275
Total purchase price consideration	$	116,701

In addition, we have agreed to pay an additional milestone-based payment of cash and equity upon the FDA pre-market approval of the Pipeline device. This milestone-based contingent payment could range from: (1) $75 million upon FDA approval prior to October 1, 2011, (2) $75 million less $3.75 million per month upon FDA approval from October 1, 2011 through December 31, 2012 and (3) no payment required if FDA approval is not obtained by December 31, 2012. The milestone-based payment of up to $75.0 million will consist of cash and equity paid in the form of shares of our common stock ranging from 30% cash and 70% equity to 85% cash and 15% equity, of the total required payment. We have recorded the acquisition-date estimated fair value of the contingent milestone payment of $37.3 million as a component of the consideration transferred in exchange for the equity interests of Chestnut. The acquisition-date fair value was measured based on the probability-adjusted present value of the consideration expected to be transferred. The fair value of the contingent milestone payment was remeasured as of October 4, 2009 at $39.7 million and is reflected in “Other long-term liabilities” in our consolidated balance sheets. The change in fair value for the three and nine months ended October 4, 2009 of $2.3 million and $2.5 million, respectively, is reflected as “Contingent consideration” in our consolidated statements of operations.

The assets acquired and liabilities assumed in the Chestnut acquisition were measured and recognized at their fair values, with limited exceptions, at the date of the acquisition. The excess of purchase price consideration over the net identifiable assets acquired and liabilities assumed was recognized as goodwill, and reflect the future cost benefit we expect from leveraging our commercial operations to market the acquired products. None of the goodwill or intangible assets resulting from our acquisition of Chestnut are deductible for tax purposes. The following table summarizes the preliminary value (in thousands) recognized related to the identifiable intangible assets; tangible assets, net of liabilities assumed; net deferred tax liabilities and the residual goodwill that were acquired as part of the acquisition of Chestnut:

	June 23,
	2009
Intangible assets	$	93,070
Tangible assets acquired, net of liabilities assumed		821
Deferred tax liabilities acquired, net		(29,147	)
Goodwill		51,957
Estimated value of identifiable tangible and intangible assets, net deferred tax liabilities and goodwill	$	116,701

			Weighted Average
	Fair Value		Amortization
Intangible Asset Description	Assigned		Period (in years)
Developed and core technology	$	64,130	12
Customer and distributor relationships		220	3
Trademarks and tradenames		960	5
Non-compete agreements		360	3
Total amortizable intangible assets acquired	$	65,670	11
Acquired in-process research and development		27,400	Indefinite
Total intangible assets acquired (excluding goodwill)	$	93,070

The acquired in-process research and development asset relates to the Pipeline Embolization Device, which is a new class of embolization device that is designed to divert blood flow away from an aneurysm in order to provide a complete and durable aneurysm embolization while maintaining patency of the parent vessel. This asset is recognized and measured at the estimated fair value at the date of acquisition. As of the date of the acquisition, the in-process project had not yet reached technological feasibility in the United States and had no alternative use. The primary basis for determining technological feasibility of the project in the United States is obtaining FDA regulatory approval to market the device.

The income approach was used to determine the fair value of the acquired in-process research and development asset. This approach establishes fair value by estimating the after-tax cash flows attributable to the in-process project over its useful life and then discounting these after-tax cash flows back to the present value. The costs to complete each project were based on estimated direct project expenses as well as the remaining labor hours and related overhead costs. In arriving at the value of the acquired in-process research and development project, we considered the project’s stage of completion, the complexity of the work to be completed, the costs already incurred, the remaining costs to complete the project, the contribution of core technologies, the expected introduction date and the estimated useful life of the technology. We expect to incur approximately $8.0 million of development expense to obtain the regulatory approval required to commercialize the Pipeline device in the United States. The discount rate used to arrive at the present value of acquired in-process research and development as of the date of the acquisition was approximately 27% and was based on the time value of money and medical technology investment risk factors.

The value attributable to this project, which had not yet obtained regulatory approval in the United States, has been capitalized as an indefinite lived intangible asset. Development costs incurred on this project after the acquisition are charged to expense as incurred. If the project is not successful, or completed in a timely manner, we may not realize the financial benefit expected from this project. Upon completion of development and the obtaining of regulatory approval in the United States, this asset will be an amortizable intangible asset.

Tangible assets acquired, net of liabilities assumed, were stated at fair value at the date of the acquisition based on management’s assessment and include an inventory step-up.


6.		Restructuring

OnIn ~~October 4,~~conjunction with our 2007, weacquisition ~~acquired~~of FoxHollow Technologies, Inc. (“FoxHollow”), ~~a medical device company that designs, develops, manufactures and sells medical devices primarily for the treatment of peripheral artery disease. In conjunction with the acquisition of FoxHollow,~~ our ~~management~~ management began to assess and formulate a plan to restructure certain activities of FoxHollow and to to terminate certain contractual agreements assumed in the acquisition. A significant portion of these costs related to management’s plan to reduce the workforce and included costs for severance and change of control provisions provided for under certain FoxHollow employment contracts. The ~~workforce~~ reductions began during the fourth quarter of 2007 and were completed as of the end of the third quarter of 2008. The unpaid portion of the workforce reductions represents salary continuance, which was paid over subsequent periods. We finalized our restructuring included costs ~~in conjunction~~associated with ~~our plans to consolidate our manufacturing and other operations including~~ the closure of ~~our~~leased facilities ~~located~~assumed in ~~Redwood~~the ~~City, California, which we acquired in connection with our~~ acquisition ofand ~~FoxHollow. We have completed the~~ relocation of ~~the sales, manufacturing and~~ ~~research~~those ~~and~~operations ~~development activities performed in FoxHollow’s former Redwood City facilities~~ to our existing ~~facilities located in Irvine, California and Plymouth, Minnesota~~locations. ~~During~~The ~~the~~cost ~~first quarter~~estimate ofincluded 2009, it was determined the estimated salary continuance costs to be incurred were $300,000 less than the amount previously estimated. An adjustment to the purchase price allocation was made to reduce the restructuring accrual and the amount allocated to goodwill. In addition, in the first quarter of 2009, in light of the current economic environment and continued downward pressures in the California real estate markets, we revised certain sub-lease rental assumptions ~~related~~ toregarding our ~~vacated leased FoxHollow facilities, which resulted in an increased liability~~ ~~related~~ability to ~~future lease payments of $3.4 million. The changes in assumptions relate to the additional time it will likely take to~~ find a ~~sub-lessor~~third ~~and~~party ~~the rental rate of the sub-lessor. Since this adjustment was made as a result of changes in market conditions subsequent~~ to ~~the acquisition~~assume ~~and~~those was made outside of the purchase price allocation period, the adjustment was included in the determination of net income (loss) for the nine months ended October 4, 2009 and is reflected in “Sales, general, and administrative” expenses on the consolidated statement of operationsleases.

9During the first quarter of 2009, in light of the then current economic environment and continued downward pressures in the California real estate markets, we revised certain sub-lease rental assumptions related to our vacated leased FoxHollow facilities, which resulted in an increase in the estimated liability related to future lease payments of $3.4 million. The changes in assumptions relate to the additional time it will likely take to find a sub-lessee and the rental rate of the sub-lessee. Since this adjustment was made as a result of changes in market conditions subsequent to the acquisition and was made outside of the purchase price allocation period, the adjustment was included in the determination of net income (loss) for the three months ended April 5, 2009 and was reflected in “Sales, general and administrative” expenses on the consolidated statement of operations.

~~Table~~The following table represents a summary of ~~Contents~~activity (in thousands) associated with the FoxHollow restructuring accruals that occurred during the three months ended April 4, 2010. The unpaid portions of these costs are included in “Accrued liabilities” and “Other long-term liabilities” on the consolidated balance sheets for the periods presented:

The following table represents a summary of activity (in thousands) associated with the FoxHollow restructuring accruals that occurred during the nine months ended October 4, 2009. The unpaid portion of these costs are included in “Accrued compensation and benefits,” “Accrued liabilities,” and “Other long-term liabilities” on the consolidated balance sheets for the periods presented:


Termination of contractual commitments as of December 31, 2009	$	7,705
Amounts paid		(689	)

Termination of contractual commitments as of April 4, 2010	$	7,016

						Adjustments
						Reflected in
	Balance at		Adjustments to			Consolidated						Balance at
	December 31,		Purchase Price			Statements of						October 4,
	2008		Allocation			Operations			Amounts Paid			2009
Workforce reductions	$	670	$	(300	)	$	(49	)	$	(321	)	$	—
Termination of contractual commitments		7,495		—			3,421			(2,563	)		8,353
Total	$	8,165	$	(300	)	$	3,372		$	(2,884	)	$	8,353


7.		Inventories, Net

~~Inventories~~Inventory, net ~~consist~~consists of the following (in thousands):

	October 4, 2009			December 31, 2008
	April 4, 2010				December 31, 2009
Raw materials	$	1110,~~376~~399		$	~~10,472~~$	10,927
Work in-progress		5,~~358~~244			~~4,144~~	4,849
Finished goods		3940,~~385~~031			~~43,408~~	40,252
		56,119			58,024
		55,674				56,028
Inventory reserve		(109,~~285~~536	)		~~(10,337~~	)(10,974	)
Inventory, net	$	4546,~~834~~138		$	~~47,687~~$	45,054

~~Our~~Consigned ~~consigned~~ inventory ~~balance was $21.0 million and $20.9 million~~ as of ~~October~~April 4, ~~2009~~2010 and December 31, ~~2008,~~2009 was $18.9 million and $21.7 million, respectively.

8~~. Property and Equipment, Net~~

Property and equipment, net consist of the following (in thousands):

	October 4, 2009			December 31, 2008
Machinery and equipment	$	31,191		$	29,550
Office furniture and equipment		19,649			18,466
Leasehold improvements		14,902			14,131
Construction in progress		4,290			5,670
		70,032			67,817
Less:
Accumulated depreciation		(43,593	)		(37,136	)
Property and equipment, net	$	26,439		$	30,681

Total depreciation expense for property and equipment was $2.8 million and $8.5 million for the three and nine months ended October 4, 2009, respectively, and $2.8 million and $8.7 million for the three and nine months ended September 28, 2008, respectively.

Property and Equipment, Net

Property and equipment, net consists of the following (in thousands):


	April 4, 2010			December 31, 2009

Machinery and equipment	$	32,858		$	32,126
Office furniture and equipment		22,334			21,508
Leasehold improvements		16,735			16,846
Construction in progress		3,242			3,567

		75,169			74,047
Less:
Accumulated depreciation and amortization		(47,260	)		(44,888	)

Property and equipment, net	$	27,909		$	29,159

Depreciation and amortization expense for property and equipment was $2.5 million and $2.8 million for the three months ended April 4, 2010 and April 5, 2009, respectively.

Goodwill and Intangible Assets

The changes in the carrying amount of goodwill by operating segment for the ~~nine~~three months ended ~~October~~April 4, ~~2009~~2010 are as follows (in thousands):

	Peripheral
	Vascular			Neurovascular		Total
Balance as of December 31, 2008	$	230,400		$	85,254	$	315,654
Balance as of December 31, 2009	$	230,100		$	137,386	$	367,486
Adjustment to goodwill related to acquisition of FoxHollow (Note 6)		(300	)		—		(300	)
Adjustments to goodwill related to acquisition of Chestnut		—			89		89
Goodwill related to acquisition of Chestnut (Note 5)		—			51,957		51,957
Balance as of April 4, 2010	$	230,100		$	137,475	$	367,575
Balance as of October 4, 2009	$	230,100		$	137,211	$	367,311

Intangible assets, net consist of the following (in thousands):

	Weighted		~~October~~April 4, ~~2009~~2010							December 31, ~~2008~~2009
	Average		Gross					Net		Gross					Net
	Useful Life		Carrying		Accumulated			Carrying		Carrying		Accumulated			Carrying
	(in years)		Amount		Amortization			Amount		Amount		Amortization			Amount
Patents and licenses		5.0	$	16,~~945~~750	$	(78,~~409~~132	)	$	98,~~536~~618	$	1516,~~413~~016	$	(67,~~264~~743	)	$	98,~~149~~273
Developed technology		11.0		260,147		(7887,~~559~~926	)		~~181~~172,~~588~~221		~~196~~260,~~016~~147		(6683,~~312~~242	)		~~129~~176,~~704~~905
Trademarks and tradenames		8.0		13,182		(5,~~263~~861	)		7,~~919~~321		1213,~~222~~182		(45,~~457~~562	)		7,~~765~~620
Customer relationships		10.0		56,314		(2123,~~373~~667	)		3432,~~941~~647		56,~~094~~314		(1722,~~967~~520	)		3833,~~127~~794
Acquired in-process research and development		—		27,400		—			27,400		—27,400		—			—27,400
Distribution rights		2.5		—		—			—		7,966		(7,419	)		547
Other intangible assets		3.0		360		(94	)		266		360		(64	)		296
Other intangible assets		3.0		360		(34	)		326		—		—			—
Intangible assets, net			$	374,153	$	(125,680	)	$	248,473	$	373,419	$	(119,131	)	$	254,288
Intangible assets, net			$	374,348	$	(112,638	)	$	261,710	$	287,711	$	(102,419	)	$	185,292

~~Intangible~~Total ~~assets~~amortization ~~are amortized using methods which approximate the benefit provided by the utilization~~ of ~~the~~intangible assets. ~~Patents~~was ~~and~~$6.7 million ~~licenses, developed technology~~ and ~~trademarks and tradenames are amortized on a straight-line basis~~$5.8 million ~~Customer~~for ~~relationships are amortized using both straight-line and accelerated methods that approximate~~ the ~~pattern~~three ~~of economic benefit. Acquired~~months ~~in-process~~ended ~~research and development is an indefinite-lived intangible asset until it reaches technological feasibility~~April 4, at2010 ~~which time it would become a finite-lived asset~~ and beApril 5, ~~amortized~~2009, ~~over its estimated useful life~~respectively.

~~Total amortization of other intangible assets was $6~~10.~~8 million~~ ~~and~~Gain ~~$18.4 million~~on ~~for the three and nine months ended October 4~~Investments, ~~2009, respectively, and $8.1 million and $24.3 million for the three and nine months ended September 28, 2008, respectively.~~ Net

~~The~~Gain ~~estimated~~on ~~amortization expense~~investments, ~~inclusive~~net ofwas ~~amortization~~$4.1 million ~~expense already recorded~~ for the ~~nine~~ three months ended ~~October~~April 45, 2009 ~~and~~attributed ~~excluding any possible future amortization associated with~~to ~~acquired in-process research and development which has not reached technological feasibility, for~~ the ~~next~~divestiture ~~five~~of ~~years~~non-strategic ~~ending December 31 is as follows (in thousands):~~investments.

2009	$	24,714
2010		25,400
2011		23,841
2012		23,623
2013		23,278

11.

Income Taxes

10We use an estimated annual effective tax rate in determining our quarterly provision for income taxes. ~~Intangible~~We ~~Asset~~have ~~Impairment~~recorded an income tax benefit of $608,000 for the three months ended April 4, 2010, which reflects a reduction in the U.S. federal

~~In the second quarter of 2008, Merck & Co., Inc. (“Merck”) notified us that it was exercising its~~9 right to terminate the amended and restated collaboration and license agreement, dated September 26, 2006, between Merck and FoxHollow, effective July 22, 2008. Under the terms of the agreement, which was amended in July 2007 in connection with our acquisition of FoxHollow, Merck had the right to terminate the agreement if FoxHollow’s founder and former chief executive officer was no longer a director of our company other than in the event of his death or disability. As a result of

~~this~~income ~~individual’s~~tax ~~resignation~~due ~~from~~to ~~our~~recently ~~board~~passed oflegislation ~~directors~~enabling inus ~~February 2008,~~to ~~Merck~~utilize ~~had~~additional ~~the~~net ~~right~~operating toloss ~~terminate~~carryforwards ~~the~~for ~~agreement~~alternative atminimum ~~any~~tax ~~time during the six-month period thereafter~~purposes. ~~Based~~For ~~upon~~ the ~~status of~~three ~~the~~months ~~ongoing~~ended ~~negotiations with Merck, an impairment indicator existed at June~~April 295, ~~2008. As a result of the termination of the Merck collaboration and license agreement~~2009, we recorded anincome ~~asset impairment~~tax ~~charge~~benefit of $10192,000.~~5 million during the second quarter of 2008 to write-off the remaining~~ ~~carrying value of the related Merck intangible asset that was established at the time of our acquisition of FoxHollow.~~

11We have assessed all available evidence to determine the necessity of maintaining a valuation allowance for our deferred tax assets. ~~Long~~In determining the amount of net deferred tax assets, we have excluded the deferred tax liability of $10.3 million related to acquired in-~~Term~~process ~~Debt~~research and development. While the deferred tax liability reduces our net deferred tax assets by a comparable amount, it does so in a manner that does not provide predictable future taxable income because the related asset is indefinite-lived and does not reduce the amount of net deferred tax assets. The deferred tax liability is reported under the caption “Other long-term liabilities” in our consolidated balance sheets.

~~Long-term~~A ~~debt~~valuation ~~consists~~allowance ofhas been recorded against our remaining net deferred tax assets as we have concluded that it is more likely than not that the ~~following~~deferred (tax assets will not be utilized. If it is determined in ~~thousands):~~a future period that it is more likely than not that the deferred tax assets will be utilized, we will reverse all or part of the valuation allowance for our deferred tax assets.

	October 4, 2009			December 31, 2008
Term loan	$	7,083		$	8,958
Less: current portion		(2,500	)		(2,500	)
Total long-term debt	$	4,583		$	6,458

12.

Other Comprehensive Income (Loss)

Our operating subsidiaries, ev3 Endovascular, Inc., ev3 International, Inc., Micro Therapeutics, Inc. and FoxHollow Technologies, Inc. which we collectively refer to as the “borrowers,” are parties to a loan and security agreement with Silicon Valley Bank, which was amended most recently in December 2008. The amended facility consists of a $50.0 million revolving line of credit and $10.0 million term loan. The revolving line of credit expires June 25, 2010 and the term loan matures on June 23, 2012. Pursuant to the terms of the loan agreement, and subject to specified reserves, we may borrow under the revolving line of credit up to $12.0 million without any borrowing base limitations. Aggregate borrowings under the revolving line of credit that exceed $12.0 million will subject the revolving line to borrowing base limitations. These limitations allow us to borrow, subject to specified reserves, up to 80% of eligible domestic and foreign accounts receivables plus up to 30% of eligible inventory. Additionally, borrowings against the eligible inventory may not exceed the lesser of 33% of the amount advanced against accounts receivable or $10.0 million. As of October 4, 2009, we had $7.1 million in outstanding borrowings under the term loan and no outstanding borrowings under the revolving line of credit; however, we had $1.1 million of outstanding letters of credit issued by Silicon Valley Bank, which reduced the maximum amount available under our revolving line of credit as of October 4, 2009 to $48.9 million.

Borrowings under the revolving line of credit bear interest at a variable annual rate equal to Silicon Valley Bank’s prime rate plus 0.5%. Borrowings under the term loan bear interest at a variable annual rate equal to Silicon Valley Bank’s prime rate plus 1.0%. Silicon Valley Bank’s prime rate at October 4, 2009 was 4.0%. Accrued interest on any outstanding balance under the revolving line and the term loan is payable monthly in arrears. Principal amounts outstanding under the term loan are payable in 48 consecutive equal monthly installments on the last day of each month. We incurred $150,000 of debt issuance costs which are being amortized over the term of the revolving line of credit.

Both the revolving line of credit and term loan are secured by a first priority security interest in substantially all of our assets, excluding intellectual property, which is subject to a negative pledge, and are guaranteed by ev3 Inc. and all of our domestic direct and indirect subsidiaries that are not borrowers. The loan agreement requires ev3 Inc. to maintain on a consolidated basis a minimum adjusted quick ratio of at least 0.75 to 1.00, measured as of the last day of each month, and to maintain minimum consolidated earnings before interest, taxes, depreciation and amortization, or EBITDA, as adjusted for certain non-cash items, of at least $7.5 million for the third quarter of 2009 and at least $10.0 million for the fourth quarter of 2009 and each fiscal quarter thereafter, each measured as of the last calendar day of each such fiscal quarter.

The loan agreement also imposes certain limitations on the borrowers, their subsidiaries and us, including without limitation, limitations on their ability to: (i) transfer all or any part of their business or properties; (ii) permit or suffer a change in control; (iii) merge or consolidate, or acquire any entity; (iv) engage in any material new line of business; (v) incur additional indebtedness or liens with respect to any of their properties; (vi) pay dividends or make any other distribution on or purchase of any of their capital stock; (vii) make investments in other companies; or (viii) engage in related party transactions, subject in each case to certain exceptions and limitations. The loan agreement requires us to maintain certain operating and investment accounts with Silicon Valley Bank or its affiliates. The borrowers are required to pay customary fees with respect to the facility, including a fee on the average unused portion of the revolving line.

The loan agreement contains customary events of default, including the failure to make required payment, the failure to comply with certain covenants or other agreements, the occurrence of a material adverse change, failure to pay certain other indebtedness and certain events of bankruptcy or insolvency. Upon the occurrence and during the continuation of an

event of default, amounts due under the loan agreement may be accelerated. We were in compliance with required covenants at October 4, 2009 and expect to remain in compliance for the foreseeable future.

Annual maturities of our long-term debt are as follows (in thousands):

Remaining 2009	$	625
2010		2,500
2011		2,500
2012		1,458
Total	$	7,083

12. Other Long-term Liabilities

Other long-term liabilities consist of the following (in thousands):

	October 4, 2009		December 31, 2008
Contingent consideration (see Note 5)	$	39,742	$	—
Deferred tax liability (see Note 5 and 14)		10,149		—
Other long-term liabilities		8,192		6,217
Total other long-term liabilities	$	58,083	$	6,217

13. Gain on Investments, Net

Gain on investments, net of $4.1 million for the nine months ended October 4, 2009 was attributed to the divestiture of non-strategic investments.

14. Income Taxes

We use an estimated annual effective tax rate in determining our quarterly provision for income taxes. We have recorded income tax expense of $849,000 and an income tax benefit of $17.5 million for the three and nine months ended October 4, 2009, respectively. The income tax benefit for the nine months ended October 4, 2009 reflects a reduction in the valuation allowance of $19.0 million, which offsets anticipated foreign income taxes and U.S. alternative minimum tax.

In connection with the Chestnut acquisition, we recorded deferred tax liabilities of $29.1 million, which includes $19.0 million related to amortizable intangible assets and $10.1 million related to indefinite-lived acquired in-process research and development. The deferred tax liabilities of $19.0 million related to the amortizable intangibles reduces our net deferred tax assets by a similar amount and in a manner that will provide predictable future taxable income over the asset amortization period. As a result, we reduced our pre-acquisition valuation allowance against deferred tax assets by $19.0 million, which has been reflected as an income tax benefit in our consolidated statements of operations. Although the deferred tax liability of $10.1 million related to acquired in-process research and development also reduces our net deferred tax assets by a comparable amount, it does so in a manner that does not provide predictable future taxable income because the related asset is indefinite-lived. Therefore, the valuation allowance against deferred tax assets was not reduced as a result of this item, and we have reported the net $10.1 million deferred tax liability under the caption “Other long-term liabilities” in our consolidated balance sheet.

We have assessed all available evidence to determine the necessity of maintaining a valuation allowance for our deferred tax assets. A full valuation allowance has been recorded against our remaining net deferred tax assets as we have concluded that it is more likely than not that the deferred tax assets will not be utilized. If it is determined in a future period that it is more likely than not that the deferred tax assets will be utilized, we will reverse all or part of the valuation allowance for our deferred tax assets.

For the three and nine months ended September 28, 2008, we recorded income tax expense of $516,000 and $1.5 million, respectively, related to operations in certain foreign jurisdictions.

15. Other Comprehensive Income (Loss)

The following table provides a reconciliation of net income (loss) to comprehensive income (loss) (in thousands):

Three Months Ended

~~Nine Months Ended~~

October 4,2009

September 28,2008

October 4,2009

September 28,2008

April 4, 2010

April 5, 2009

Net income (loss)

69,~~736~~864

(71,~~310~~809

)

~~28,916~~

~~(44,502~~

)

Changes in foreign currency translation

~~(161~~96

)

~~137~~344

~~107~~

~~115~~

Total comprehensive income (loss)

69,~~575~~960

(71,~~173~~465

)

~~29,023~~

~~(44,387~~

)

1613. Commitments and Contingencies

Operating Leases

We lease various manufacturing and office facilities and certain equipment under operating leases, which include standard terms of renewal and rent escalation clauses that we account for on a straight-line basis over the term of the operating lease.

On April 2, 2009, we entered into a lease agreement to rent approximately 75,000 square feet of space in Plymouth, Minnesota, for an initial term of 80 months beginning on November 1, 2009. Subject to certain conditions, we may extend the term of the lease for up to two additional terms of five years at the then market rate for rent. Pursuant to the lease agreement, the monthly rental payment will be approximately $95,000, subject to annual increases. In addition to base rent, we will pay a certain percentage of the annual real estate taxes and operating expenses of the building. We intend to use the new location for our corporate and U.S. peripheral vascular business headquarters. Our current corporate and U.S. peripheral vascular business headquarters are located in a 50,000 square foot building in Plymouth, Minnesota and are subject to a lease that extends to February 28, 2010.

Total non-cancelable minimum lease commitments, including rent expense related to operating leases for the nine months ended October 4, 2009, are as follows (in thousands):

Years ending December 31:
2009	$	7,762
2010		6,955
2011		4,716
2012		3,317
2013		2,912
Thereafter		8,423
	$	34,085

Rent expense related to non-cancelable operating leases was $1.5 million and $4.1 million for the three and nine months ended October 4, 2009, respectively, and $1.6 million and $4.8 million for the three and nine months ended September 28, 2008, respectively.

During the first quarter of 2009, we recorded an adjustment to our lease termination reserve associated with three FoxHollow leased facilities located in California which we effectively abandoned during fiscal year 2008 as part of our consolidation strategy. Future rental expense for these facilities will be offset by the amortization of the lease termination reserve and sublease payments received. For additional discussion regarding the termination of these contractual commitments see Note 6.

Portions of our payments for operating leases are denominated in foreign currencies and were translated in the table above based on their respective U.S. dollar exchange rates at October 4, 2009. These future payments are subject to foreign currency exchange rate risk.

Letters of Credit

As of October 4, 2009, we had outstanding commitments of $4.7 million which are supported by irrevocable standby letters of credit and restricted cash. The letters of credit and restricted cash support various obligations, such as operating leases, tender arrangements with customers and automobile leases.

Contingent Consideration

Under the terms of ~~the acquisition agreement relating to~~ our Chestnut acquisition ~~of Chestnut~~agreement, we may be obligated to make an additional milestone-based payment of cash and equity totaling up to $75 .0 million upon the FDA pre-market approval of the Pipeline ~~device~~Embolization Device. For additional discussion regarding the contingent consideration, see Note 54.

Other Contingencies

We are from time to time subject to, and are presently involved in, various pending or threatened legal actions and proceedings, including those that arise in the ordinary course of our business. Such matters are subject to many uncertainties and to outcomes that are not predictable with assurance and that may not be known for extended periods of time. We record a liability in our consolidated financial statements for costs related to claims, including future legal costs, settlements and judgments, where we have assessed that a loss is probable and an amount can be reasonably estimated. Our significant legal proceedings are discussed below. While it is not possible to predict the outcome for most of the legal proceedings discussed below, the costs associated with such proceedings could have a material adverse effect on our consolidated results of operations, financial position or cash flows of a future period.

The acquisition agreement relating to our acquisition of Appriva Medical, Inc. contains four milestones to which payments relate. The first milestone was required by its terms to be achieved by January 1, 2005 in order to trigger a payment equal to $50 million. The other milestones were required by their terms to be achieved by either January 1, 2008 or January 1, 2009, and, if achieved, triggered payments totaling $125 million. We believe that the milestones were not achieved by the applicable dates and that none of the milestones are payable. On May 20, 2005, Michael Lesh, as an individual seller of Appriva stock and purporting to represent certain other sellers of Appriva stock, filed a complaint in the Superior Court of the State of Delaware with individually specified damages aggregating $70 million and other unspecified damages for several claims, including breach of the acquisition agreement and the implied covenant of good faith and fair dealing, fraud, negligent misrepresentation and violation of state securities laws in connection with the negotiation of the acquisition agreement. On or about November 21, 2005, a second lawsuit was filed in Delaware Superior Court relating to the acquisition of Appriva Medical, Inc. The named plaintiff of that action was Appriva Shareholder Litigation Company, LLC, which according to the complaint was formed for the purpose of pursuing claims against us. That complaint alleged specified damages in the form of the second milestone payment ($25 million), which was claimed to be due and payable, and further alleged unspecified damages for several claims, including misrepresentation, breach of contract, breach of the implied covenant of good faith and fair dealing and declaratory relief. On November 26, 2008, in a consolidated proceeding, the trial court granted our motion for summary judgment on the issue of standing and dismissed both complaints without prejudice. On April 7, 2009, Michael Lesh and Erik Van Der Burg, acting jointly as the ~~Shareholder~~shareholder ~~Representatives~~representatives for the former shareholders of Appriva Medical, Inc., filed ~~a motion~~an toamended ~~amend~~complaint ~~their complaints~~ in Superior Court of the State of Delaware. The ~~proposed amended~~ complaint seeks the recovery of all of the milestone payments and punitive damages. The plaintiffs assert several claims, including breach of contract, fraudulent inducement and violation of California securities law. We ~~filed~~intend ~~a motion~~ to ~~dismiss~~answer the ~~entire amended~~ complaint, ~~but~~after ~~the~~which ~~trial~~the ~~court~~discovery ~~has~~process ~~yet~~will ~~to rule on the motion~~start. Because this matter is in the early stages, we cannot estimate the possible loss or range of loss, if any, associated with its resolution. However, there can be no assurance that the ultimate resolution of this matter will not result in a material adverse effect on our business, financial condition, results of operations or cash flows of a future period.

InPursuant ~~July 2006,~~to ~~August 2006 and February 2007, three separate shareholder class action complaints were filed against FoxHollow and two of its officers in~~ the ~~U.S.~~acquisition ~~District~~agreement ~~Court~~relating ~~for the Northern District of California. These cases were subsequently consolidated into a single matter. The plaintiffs are seeking~~ to ~~represent a class of purchasers of~~ FoxHollow’s ~~common~~purchase ~~stock~~of ~~from~~Kerberos ~~May 13,~~Proximal ~~2005 to January 26~~Solutions, ~~2006~~Inc., ~~The complaints generally allege that false or misleading statements were made concerning~~ FoxHollow’s ~~management~~agreed ~~and~~to ~~seek~~pay ~~unspecified~~certain ~~monetary~~earn-out ~~damages.~~payments Onup ~~May 27, 2008, the U.S. District Court dismissed the consolidated case without leave~~ to ~~amend~~an ~~the~~aggregate ~~complaint~~of ~~and~~$117.0 ~~judgment~~million ~~was~~upon ~~enforced that day against~~ the ~~plaintiffs.~~achievement ~~The plaintiffs subsequently filed a notice~~ of ~~appeal~~contractually todefined ~~the~~net ~~United~~sales ~~States~~milestones. ~~Court~~Counsel ~~of Appeals~~ for the ~~Ninth Circuit on June 20, 2008. The appeal~~ isshareholder ~~still~~representatives ~~pending. Because these matters are in early stages and because~~ of ~~the~~Kerberos ~~complexity~~have ofalleged ~~the cases,~~that weFoxHollow ~~cannot~~has ~~estimate the possible loss or range of loss, if any, associated with~~not

1510

~~their~~used ~~resolution~~commercially reasonable efforts to market, promote, sell and distribute Kerberos’s Rinspirator products, as required under the agreement. ~~However~~We discontinued the sale of the Rinspirator products in January 2009. Although no formal litigation has been commenced by the stockholder representatives of Kerberos regarding the alleged claims, there can be no assurance that the ultimate resolution of this ~~these~~matter ~~matters~~ will not result in a material adverse effect on our business, financial condition, results of operations or cash flows of a future period.

In February 2007, David Martin, FoxHollow’s former chief operating officer, filed a wrongful termination and defamation suit against FoxHollow and one of its officers in the Superior Court of the State of California, San Mateo County14. InSegment ~~March 2007, the Superior Court granted Martin’s petition to compel arbitration of his claims~~ and ~~arbitration~~Geographic is currently in its initial stages. The complaint is based on substantially similar facts and circumstances as the class action complaints and derivative actions described above. Martin generally alleges that he was terminated from his employment in violation of the covenant of good faith and fair dealing and in retaliation for actions he had the legal right to take. Martin seeks economic damages in excess of $10 million, plus non-economic and exemplary damages. On May 1, 2007, the Court granted Martin’s petition to compel arbitration. In the third quarter of 2009, the parties have agreed in principle to settle this dispute and are currently documenting that settlement. Based on such settlement agreement, the amount of the settlement is probable and estimable and we have made the appropriate provision in our consolidated financial statements during the third quarter of 2009, which did not have a material adverse effect on our business, financial condition, results of operations or cash flows. Information

17Our management, including our chief executive officer who is our chief operating decision maker, report and manage our operations in two reportable business segments based on similarities in the products sold, customer base and distribution system. ~~Segment~~Our peripheral vascular operating segment contains products that are used primarily in peripheral vascular procedures by vascular surgeons, cardiologists and ~~Geographic~~radiologists. ~~Information~~Our neurovascular operating segment contains products that are used primarily by neuroradiologists, interventional neurosurgeons and neurosurgeons.

Our management, including our chief executive officer who is our chief operating decision maker, report and manage our operations in two reportable business segments based on similarities in the products sold, customer base and distribution system. Our peripheral vascular operating segment contains products that are used primarily in peripheral vascular procedures by radiologists, vascular surgeons and cardiologists. Our neurovascular operating segment contains products that are used primarily by neuroradiologists, interventional neurosurgeons and neurosurgeons.

Management measures segment profitability on the basis of gross profit calculated as net sales less cost of goods sold excluding amortization of intangible assets. Other operating expenses are not allocated to individual operating segments for internal decision making activities.

We sell our products through a direct sales force in the United States, Europe, Canada and ~~other~~ ~~countries~~Australia as well as through distributors in ~~certain~~ other international markets. Our customers include a broad physician base consisting of vascular surgeons, neurosurgeons, other endovascular specialists, radiologists, neuroradiologists and cardiologists.

16Selected financial information related to our segments is presented below (in thousands):


	Three Months Ended
	April 4, 2010		April 5, 2009

Net sales
Peripheral vascular
Plaque excision	$	20,485	$	18,308
Stents		29,873		28,174
Thrombectomy and embolic protection		9,445		8,047
Procedural support and other		14,974		11,673

Total peripheral vascular		74,777		66,202

Neurovascular
Embolic products and stents		32,470		19,547
Neuro access and delivery products and other		16,607		14,646

Total neurovascular		49,077		34,193


Total net sales	$	123,854	$	100,395


Gross profit
Peripheral vascular	$	54,054	$	44,395
Neurovascular		40,573		25,012

Total gross profit (1)		94,627		69,407

Operating expense		84,820		73,054

Income (loss) from operations	$	9,807	$	(3,647	)

Certain prior year assets have been reclassified to conform to the current year presentation. The following table presents segment information (in thousands):


Total assets	April 4, 2010		December 31, 2009

Peripheral vascular	$	553,674	$	548,641
Neurovascular		355,108		347,648

Total	$	908,782	$	896,289

	Three Months Ended					Nine Months Ended
	October 4,		September 28,			October 4,		September 28,
	2009		2008			2009		2008
Net sales
Net product sales:
Peripheral vascular:
Atherectomy	$	19,607	$	20,992		$	60,024	$	68,624
Stents		28,787		26,772			86,620		77,932
Thrombectomy and embolic protection		7,319		6,938			23,280		19,990
Procedural support and other		11,898		12,184			35,902		35,243
Total peripheral vascular		67,611		66,886			205,826		201,789
Neurovascular:
Embolic products		28,408		18,174			69,599		53,469
Neuro access and delivery products and other		16,819		14,958			46,894		41,319
Total neurovascular		45,227		33,132			116,493		94,788
Total net product sales		112,838		100,018			322,319		296,577
Research collaboration		—		7,011			—		19,426
Total net sales	$	112,838	$	107,029		$	322,319	$	316,003
Gross profit:
Peripheral vascular	$	49,830	$	39,480		$	143,961	$	124,442
Neurovascular		34,400		24,356			88,284		69,693
Research collaboration		—		4,911			—		13,779
Total gross profit (1)	$	84,230	$	68,747		$	232,245	$	207,914
Operating expense		76,648		73,355			222,983		251,542
Income (loss) from operations	$	7,582	$	(4,608	)	$	9,262	$	(43,628	)

	October 4,		December 31,
	2009		2008
Total assets:
Peripheral vascular	$	539,618	$	545,588
Neurovascular		332,292		175,076
Total	$	871,910	$	720,664


(1)		Gross profit for internal measurement purposes is defined as net sales less cost of goods sold excluding amortization of intangible assets.

~~The following table presents net sales and long-lived assets by geographic area (in~~11 ~~thousands):~~

	Three Months Ended				Nine Months Ended
	October 4,		September 28,		October 4,		September 28,
	2009		2008		2009		2008
Geographic Data
Net Sales:
United States	$	68,430	$	70,452	$	197,779	$	208,773
International		44,408		36,577		124,540		107,230
Total net sales	$	112,838	$	107,029	$	322,319	$	316,003

	October 4,		December 31,
	2009		2008
Long-lived Assets:
United States	$	25,229	$	29,603
International		1,210		1,078
Total long-lived assets	$	26,439	$	30,681

~~18.~~The ~~Related~~following ~~Party~~table ~~Transaction~~presents net sales and long-lived assets by geographic area (in thousands):

During the second quarter 2007, we entered into a distribution agreement with Beijing Lepu Medical Device, Inc. (“Lepu”), a Chinese domiciled manufacturer and distributor of interventional cardiology and peripheral products. The two-year agreement allows Lepu to sell certain of our embolic protection devices and stents in China. We believe that having access to Lepu and its sub-distributor network is a strategic way for us to quickly gain access and market share in these strategic markets. Warburg Pincus Equity Partners, L.P. and certain of its affiliates (“Warburg Pincus”), who collectively owned over 50% of our outstanding common stock at the time we entered into the distribution agreement with Lepu, and together with Vertical Group, L.P. (“Vertical”), have two designees on our board of directors, owns an approximate 20% ownership interest in Lepu and has a designee on Lepu’s board of directors. Lepu purchased peripheral vascular products from us that we recognized as net product sales totaling approximately $160,000 and $2.6 million for the three and nine months ended October 4, 2009, respectively, and $260,000 and $1.7 million for three and nine months ended September 28, 2008, respectively. As of October 4, 2009 and December 31, 2008, Lepu owed us approximately $77,000 and $364,000, respectively, recorded as “Accounts receivable” on the consolidated balance sheets.


	Three Months Ended
	April 4, 2010		April 5, 2009

Geographic Data
Net sales
United States	$	72,957	$	61,654
International		50,897		38,741

Total net sales	$	123,854	$	100,395

19. Net Income (Loss) Per Common Share


Long-lived assets	April 4, 2010		December 31, 2009

United States	$	26,683	$	27,823
International		1,226		1,336

Total long-lived assets	$	27,909	$	29,159

15.

Related Party Transaction

During the second quarter of 2007, we entered into a distribution agreement with Beijing Lepu Medical Device, Inc. (“Lepu”), a Chinese domiciled manufacturer and distributor of interventional cardiology and peripheral products. The agreement was amended in the fourth quarter of 2009 allowing Lepu to sell certain of our embolic protection devices and stents in China, through the expiration date of the agreement, December 31, 2010. We believe that having access to Lepu and their sub-distributor network is a strategic way for us to quickly gain access and market share in these strategic markets. Warburg Pincus Equity Partners, L.P. (“Warburg Pincus”), who owned approximately 24% of our outstanding common stock as of April 4, 2010, and who together with Vertical Group, L.P. (“Vertical”) has two designees on our board of directors, has an approximate 18% ownership interest in Lepu and has a designee on Lepu’s board of directors. Lepu purchased peripheral vascular products from us that we have recognized as revenue totaling approximately $1.8 million and $1.9 million, for the three months ended April 4, 2010 and April 5, 2009, respectively. As of April 4, 2010 and December 31, 2009, Lepu owed us approximately $1.6 million and $70,000, respectively, that is included in accounts receivable.

16.

Net Income (Loss) Per Common Share

Basic net earnings (loss) per share is computed based on the weighted average number of common shares outstanding. Diluted net earnings (loss) per share is computed based on the weighted average number of common shares outstanding adjusted, to the extent dilutive, by the number of additional shares that would have been outstanding had the potentially dilutive common shares been issued and reduced by the number of shares we could have repurchased with the proceeds from the potentially dilutive shares. Potentially dilutive shares include options to purchase shares of our common stock and other share-based awards granted under our share-based compensation plans.

The weighted average number of common shares outstanding for basic and diluted earnings per share purposes is as follows:

	Three Months Ended				~~Nine Months Ended~~
	October 4,		September 28,		October 4,		September 28,
	April 4, 2010		April 5, 2009
	2009		2008		2009		2008
Weighted average number of shares outstanding, basic		112,674,997		105,030,020
Weighted average number of shares outstanding, basic		110,507,687		104,474,600		107,080,500		104,276,029
Incremental effect of stock options and awards		1,711,311		—
Common stock equivalents:
Weighted average number of shares outstanding, diluted		114,386,308		105,030,020
Stock options		1,024,527		—		257,253		—
Stock awards		745,740		—		382,144		—
Weighted average number of shares outstanding, diluted		112,277,954		104,474,600		107,719,897		104,276,029

InThere ~~connection~~were ~~with~~2.7 million ~~our~~stock ~~Chestnut~~options ~~acquisition,~~and weawards ~~may~~as beof ~~obligated~~April 4, to2010 ~~make~~and an11.0 million ~~additional milestone-based~~stock ~~payment of cash~~ options and ~~equity~~awards ~~totaling~~as upof ~~to $75~~April ~~million~~5, ~~upon~~2009, ~~the~~that ~~FDA~~were ~~pre-market approval~~excluded offrom the ~~Pipeline~~incremental ~~device.~~effect ~~The contingently issuable shares~~ of ~~common~~ stock ~~associated~~options ~~with~~and ~~the~~awards ~~equity~~in ~~portion of~~ the ~~milestone-based~~table ~~contingent~~above ~~payment~~as ~~are~~their ~~not~~effect ~~included~~would inhave ~~our~~been ~~basic or diluted shares outstanding. For additional discussion regarding our potential milestone~~anti-~~based contingent payment, see Note 5~~dilutive.

~~The~~In ~~following~~connection ~~potential~~with ~~common~~our ~~shares~~Chestnut ~~were~~acquisition, ~~excluded~~we ~~from~~may be obligated to make an additional milestone-based payment of cash and equity totaling up to $75.0 million upon the FDA pre-market approval of the Pipeline Embolization Device. The contingently issuable shares of common stock associated ~~equivalents~~with asthe ~~their~~equity ~~effect would~~portion ~~have~~of ~~been~~the ~~anti~~milestone-~~dilutive:~~based contingent

	Three Months Ended				Nine Months Ended
	October 4,		September 28,		October 4,		September 28,
	2009		2008		2009		2008
Stock options		5,633,569		9,255,611		7,267,777		9,543,725
Restricted stock awards and restricted stock units		167,618		1,011,779		495,285		1,093,897

payment are not included in our basic or diluted shares outstanding. For additional discussion regarding our potential milestone-based contingent payment, see Notes 4 and 13.

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

This Management’s Discussion and Analysis provides material historical and prospective ~~disclosures~~ disclosures intended to enable investors and other users to assess our financial condition and results of operations. Statements that are not historical are forward-looking and involve risks and uncertainties discussed under the ~~heading~~headings “Forward-Looking Statements” below. The following discussion of our results of operations and financial condition should be read in conjunction with our consolidated financial statements and the related notes thereto included elsewhere in this report.

Business Overview

We are a leading global endovascular company focused on identifying and treating peripheral vascular disease, including, in particular, lower extremity arterial disease, and neurovascular disease. Since our founding in 2000, we have been dedicated to developing innovative, breakthrough and clinically proven technologies and solutions for the treatment of peripheral vascular and neurovascular diseases, a strategy that we believe is uncommon in the medical device industry. We believe our unique approach of focusing on emerging and under-innovated opportunities, which treat peripheral vascular and neurovascular disease, allows us to compete with smaller companies that ~~have~~ have narrow product lines and lack an international sales force and infrastructure, yet also ~~compete~~ compete with larger companies that do not have our focus and agility.

WeOur ~~believe~~peripheral ~~the~~vascular ~~overall~~net ~~market~~sales for ~~endovascular devices will grow as~~ the ~~demand~~first ~~for~~quarter ~~minimally invasive treatment~~ of ~~vascular~~2010 ~~diseases~~benefited ~~and~~from ~~disorders continues to increase. We intend to capitalize on this market opportunity by~~ the ~~continued~~launch ~~sales execution and introduction~~ of ~~new~~our ~~products. We expect to originate~~ new ~~products~~TurboHawk ~~primarily~~Plaque ~~through~~Excision ~~our~~System ~~internal~~in ~~research~~the ~~and development~~third ~~and~~quarter ~~clinical~~of ~~efforts, but we may supplement them with targeted acquisitions or other external collaborations. Most recently, in June~~ 2009, wethe ~~acquired~~ongoing ~~Chestnut~~launch ~~Medical~~of ~~Technologies,~~our ~~Inc.~~EverCross, aNanoCross ~~then~~and ~~privately~~PowerCross ~~held,~~PTA ~~California-based~~balloons ~~company~~and ~~focused~~increased onmarket ~~developing~~penetration ~~minimally~~of ~~invasive therapies for interventional neuroradiology. This transaction broadened~~ our ~~neurovascular product~~embolic ~~portfolio~~protection bydevices ~~adding~~and ~~the~~our ~~Pipeline~~EverFlex ~~Embolization~~and ~~Device~~VisiPro ~~for~~family ~~the treatment~~ of ~~cerebral~~stents. ~~aneurysms~~We ~~and the~~launched ~~Alligator Retrieval Device for foreign body retrieval to~~ our ~~existing embolic product and neuro~~redesigned ~~access~~TrailBlazer ~~technologies.~~Support InCatheter ~~October 2007,~~in wethe ~~acquired FoxHollow Technologies, Inc~~U.S. ~~FoxHollow’s principal~~in ~~product is~~ the ~~SilverHawk~~fourth ~~Plaque~~quarter ~~Excision~~of ~~System,~~2009 ~~which~~and isin ainternational ~~minimally invasive catheter~~markets ~~system~~during ~~that~~the ~~treats~~first ~~peripheral~~quarter ~~artery~~of ~~disease~~2010. byWe ~~removing~~have ~~plaque~~also inlaunched ~~order~~our toPowerCross ~~reopen narrowed or blocked arteries~~0.018 ~~Additionally,~~PTA ~~our~~balloon ~~growth~~in ~~has been, and will continue to be, impacted by our~~U.S. ~~expansion~~ and ~~penetration~~international ~~into new geographic~~ markets, ~~the expansion~~ and ~~penetration~~now ofhave ~~our~~a ~~direct sales~~full ~~organization~~complement ~~in existing geographic markets, and our continuing focus to increase the efficiency~~ of ~~our~~platform ~~existing~~sizes ~~direct~~available ~~sales organization~~worldwide.

~~Our~~During ~~product~~the ~~portfolio~~first ~~includes~~quarter ~~a broad spectrum~~ of ~~approximately 100 products consisting of over 1~~2010,~~500~~ ~~SKUs,~~our ~~including~~neurovascular ~~stents,~~net ~~atherectomy~~sales ~~plaque~~benefited ~~excision~~from ~~products,~~the ~~embolic~~ongoing ~~protection~~launch ~~and~~of ~~thrombectomy~~our ~~products,~~Pipeline ~~percutaneous~~Embolization ~~transluminal~~Device ~~angioplasty,~~in orEurope ~~PTA balloons,~~ and other ~~procedural support~~international ~~products~~markets ~~for~~and ~~the~~continued ~~peripheral vascular~~ market penetration ~~and~~of ~~embolic~~the ~~coils,~~Axium ~~liquid embolics~~coil, ~~flow diversion~~Solitaire ~~devices,~~neuro ~~flow~~stent ~~directed~~ and ~~other~~the ~~micro~~Onyx ~~catheters,~~Liquid ~~occlusion~~Embolic ~~balloon~~System, ~~systems and neuro~~partly ~~stents~~offset ~~for~~by ~~the~~sales ~~neurovascular~~declines ~~market.~~in Asolder ageneration ~~result~~products. ofBuilding ~~our~~on ~~FoxHollow~~the ~~acquisition,~~success we ~~were~~have ~~engaged in~~experienced ~~research~~to ~~collaboration~~date with ~~Merck~~our &Axium ~~Co.~~coils, ~~Inc.~~we ~~for~~initiated ~~the~~an ~~analysis~~early oflaunch ~~atherosclerotic plaque removed from patient arteries with the goal~~ of ~~identifying~~our new ~~biomarkers~~Axium ~~for~~MicroFX ~~atherosclerotic~~PGLA ~~disease progression~~ and ~~new~~Nylon coils ~~therapies~~in ~~for~~the ~~atherosclerotic disease~~U.S. ~~Merck terminated our collaboration~~ and ~~license~~ ~~agreement~~Europe ~~effective~~in ~~July 22,~~the ~~2008.~~first Wequarter ~~subsequently reached an arrangement with Merck to accomplish an orderly wind-down~~ of ~~our research collaboration activities during the remainder of 2008~~2010.

~~Our~~We ~~management,~~expect ~~including~~to ~~our~~continue ~~chief~~to ~~executive~~further ~~officer,~~validate ~~who~~the isclinical ~~our~~and ~~chief~~competitive ~~operating~~benefits ~~decision~~of ~~maker,~~our technology ~~report~~platforms ~~and~~to ~~manage~~obtain ~~our~~regulatory ~~operations~~approvals inand ~~two~~to ~~reportable~~drive ~~business~~utilization ~~segments~~of ~~based~~our oncurrent ~~similarities~~products inand the development of new and enhanced products. ~~sold~~To accomplish this, ~~customer~~we ~~base~~have ~~and~~a ~~distribution~~number ~~system~~of clinical trials underway or currently in development. ~~Our~~In ~~peripheral~~April 2010, ~~vascular~~we ~~segment~~completed ~~contains products~~patient ~~that~~enrollment ~~are~~in ~~used~~our DURABILITY ~~primarily~~II trial in the U.S. with the objective of expanding our EverFlex stent’s U.S. indication to include treatment of peripheral ~~vascular~~artery ~~procedures~~disease. byEnrollment ~~interventional~~in ~~radiologists,~~our DEFINITIVE trial ~~vascular~~series ~~surgeons~~continues to progress, and ~~interventional~~is ~~cardiologists.~~designed ~~Our~~to ~~neurovascular~~expand ~~segment~~the ~~contains~~clinical ~~products~~evidence supporting the value ~~that~~of ~~are~~our ~~used~~plaque ~~primarily~~excision bysystems ~~neuroradiologists~~to drive increased procedure adoption, ~~interventional~~expand ~~neurologists~~clinical indications and ~~neurosurgeons~~support the use of plaque excision as a front-line therapy. ~~Our~~In ~~sales~~the ~~activities~~first ~~and~~quarter ~~operations~~of ~~are~~2010, ~~aligned~~we entered ~~closely~~into a supply agreement with MEDRAD, Inc. to use their Cotavance peripheral drug-eluting balloon catheter as part of our ~~business~~DEFINITIVE ~~segments~~AR European pilot study. We ~~generally~~also ~~have~~continue to enroll on ~~dedicated~~pace ~~peripheral~~in ~~vascular~~our ~~sales~~CREATE ~~teams~~Post Approval Study, a study of the Protégé RX and Spider FX for use in carotid artery stenting. In our neurovascular business, during the ~~United~~first ~~States~~quarter of 2010 we commenced enrollment in our Solitaire with Intention for Thrombectomy, ~~Europe~~or SWIFT, ~~Canada~~study ~~and~~under ~~other~~a U.S. ~~international~~investigational ~~countries~~device ~~that~~exemption, ~~target~~or ~~customers~~IDE, ~~who~~to ~~perform~~obtain ~~primarily~~FDA ~~peripheral~~clearance ~~vascular~~for ~~procedures~~our Solitaire Flow ~~and~~Restoration ~~separate,~~device ~~dedicated~~for ~~neurovascular~~the ~~sales~~treatment ~~teams~~of inacute ~~such~~ischemic ~~countries~~stroke. ~~that~~We are ~~specifically~~also ~~focused~~continuing with our PUFS onand COCOA studies of our ~~neurovascular~~Pipeline ~~business~~Embolization ~~customer~~Device. ~~base~~We anticipate U.S. regulatory approval for the Pipeline Embolization Device in 2011.

We have direct sales capabilities in the U.S., Europe, Canada and other countries and have established distribution relationships in selected international markets. We sell our products through a direct sales force and independent distributors in over 65 countries. Our sales and marketing infrastructure included 349 professionals as of October 4, 2009 which consisted of 294 sales professionals in the U.S., Europe, Canada and other countries. Our direct sales

representatives accounted for approximately 85% and 86% of our net product sales during the third fiscal quarter and first nine months of 2009, respectively, with the balance generated by independent distributors. In the third fiscal quarter of 2009, we began to sell our neurovascular products in Australia through our direct sales force instead of through a distributor.

Our corporate headquarters is located in Plymouth, Minnesota and the sales, manufacturing, and research and development activities of our peripheral vascular business are primarily located in Plymouth and to a lesser extent, in Irvine, California. The sales, manufacturing and research and development activities of our neurovascular business are primarily located in Irvine, although as a result of our recent acquisition of Chestnut, we now have a facility in Menlo Park, California for a portion of our neurovascular business. Outside of the U.S., our primary office is in Paris, France and we have sales offices in most countries in which we have a direct sales force.

In order to drive sales growth, we have invested heavily throughout our history in not only the expansion of our global distribution system, but also new product development and clinical trials to obtain regulatory approvals. A significant portion of our net sales historically has been, and we expect to continue to be, attributable to new and enhanced products.

During the third quarter of 2009, we launched new products in our neurovascular and peripheral vascular businesses. In neurovascular, we initiated a controlled launch of our new Pipeline Embolization Device in Europe and other international markets. Building on the success we have experienced to date with our Axium coils, we began conducting physician preference testing for two new versions of the Axium coil, the Axium PGLA and Axium Nylon microfilament coil. We launched our new Marksman delivery catheter and Alligator Retrieval Device in the U.S. and Europe. We also introduced access product line extensions, including the HyperGlide 5.0 balloon in the U.S. and Europe and the HyperGlide 3.0 balloon in the U.S. Since receiving the CE Mark for our Solitaire FR, or flow restoration, device to treat ischemic stroke in July 2009, we have completed the first cases in our European physician preference testing. We expect to launch this product in the first quarter of 2010. In our peripheral vascular business, we launched our new TurboHawk atherectomy system, which contains a SuperCutter blade designed to treat moderately to severely calcified lesions in various vessel diameters. We are planning to expand availability for the TurboHawk Super Cutter to international markets and pursue regulatory clearance in the U.S. for an endovascular indication. We also plan to launch a Smooth Cutter version of the TurboHawk for above-the-knee use in treating soft plaque in the first half of 2010. During the third quarter of 2009, we conducted physician preference testing for our TrailBlazer Support Catheters and plan to launch a full release of the TrailBlazer during the fourth quarter of 2009. We are also preparing for the launch of our PowerCross 0.018 PTA balloon platform, which we expect to release in the first quarter of 2010.

We expect to continue to further validate the clinical and competitive benefits of our technology platforms to drive utilization of our current products and the development of new and enhanced products. To accomplish this, we have a number of clinical trials underway and others that are currently in development, including our DURABILITY II trial in the U.S. with the objective of expanding our EverFlex stent’s U.S. indication to include treatment of peripheral artery disease; and our DEFINITIVE trial series designed to expand the clinical evidence supporting the value of our plaque excision systems to drive increased procedure adoption, expand clinical indications and support the use of atherectomy as a front-line therapy. In our neurovascular business, we are planning our Solitaire with Immediate Flow Restoration, or SWIFT, study under a U.S. investigational device exemption, or IDE, to obtain FDA clearance for our Solitaire neuro stent.

It is our understanding that certain biliary stent manufacturers have received subpoenas from the U.S. Department of Justice. Based on publicly available information, we believe that these subpoenas requested information regarding the sales and marketing activities of these manufacturers’ biliary stent products and that the Department of Justice is seeking to determine whether any of these activities violated civil and/or criminal laws, including the Federal False Claims Act, the Food and Drug Cosmetic Act and the Anti-Kickback Statute in connection with Medicare and/or Medicaid reimbursement paid to third parties. As of the date of this report, we have not received a subpoena from the U.S. Department of Justice relating to this investigation. No assurance can be provided, however, that we will not receive such a subpoena or become the subject of such an investigation, which could adversely affect our business and stock price.

~~Summary of Third Fiscal Quarter 2009 Financial Results and Outlook~~14

During our third fiscal quarter 2009, we achieved another quarter of profitability and cash generation. Our operating results reflect sales growth in both our peripheral vascular and neurovascular segments, continued expansion of our international business, improvement in our gross margins and continued expense control. During the remainder of 2009, we intend to remain focused on attaining our goals of achieving revenue growth equal to or slightly above the growth in

~~the~~Summary ~~markets~~of weFirst ~~compete,~~Quarter ~~sustaining~~of ~~profitability,~~2010 ~~generating~~Financial ~~cash~~Results and ~~expanding our global position~~Outlook ~~in the peripheral vascular and neurovascular markets.~~

~~Our~~During ~~third~~our ~~fiscal~~first quarter ~~2009~~of ~~results~~2010, ~~and~~we ~~financial~~achieved ~~condition~~sales ~~included~~growth ~~the~~across ~~following~~both ~~items~~our ofperipheral vascular and ~~significance~~neurovascular segments, ~~some~~improvement ofin ~~which~~our wegross ~~expect~~margins ~~also~~and ~~may~~continued ~~affect~~expense leverage compared to our ~~results~~first ~~and~~quarter ~~financial~~of ~~condition~~2009. ~~during~~ During the remainder of ~~2009:~~2010, we will continue to focus on growing our revenue at or above market rates, improving profitability and generating cash.

•Our ~~Net~~first ~~sales~~quarter of ~~our~~2010 ~~peripheral~~results ~~vascular~~and ~~products~~financial ~~increased~~condition 1%included ~~to $67.6 million in~~ the ~~third~~following ~~fiscal~~items ~~quarter 2009 compared to the third fiscal quarter 2008 primarily as a result~~ of ~~increased market penetration of our EverFlex family of stents~~ significance, ~~embolic~~some ~~protection devices and balloon expandable stents, partially offset by a decline in sales~~ of ~~our~~which ~~atherectomy~~we ~~products and sales declines in older generation products. We~~ expect ~~continued~~may ~~penetration~~also ~~with~~affect our ~~EverFlex~~results ~~family~~and offinancial ~~stents~~condition during the remainder of 2009, although we remain cautious of the current regulatory environment regarding the off-label utilization of devices and increased competition we may experience. During the third fiscal quarter 2009, although our atherectomy sales decreased compared to the third fiscal quarter 2008, we expect the recent launch of our new TurboHawk atherectomy system to have a positive impact on our atherectomy sales going forward.2010:

• Net sales of our ~~neurovascular~~peripheral vascular products increased 3713% to $4574.28 million in the ~~third~~first ~~fiscal~~ quarter ~~2009~~of 2010 compared to the ~~third~~first ~~fiscal~~ quarter ~~2008~~of 2009 primarily as a result of ~~continued~~the ~~market~~recent ~~penetration~~launch of our ~~Axium~~new ~~coil~~TurboHawk Plaque Excision System, the ongoing launch of our EverCross, NanoCross and ~~Onyx~~new ~~Liquid~~PowerCross ~~Embolic~~PTA ~~System~~balloons, and ~~the~~increased ~~launch~~market penetration of our ~~Pipeline~~embolic ~~Embolization~~protection ~~Device~~devices, inincluding ~~Europe~~our EverFlex family of self-expanding stents and ~~other~~Visi-Pro ~~international~~balloon ~~markets~~expandable stents. We ~~began~~expect ~~conducting~~the ~~physician~~recent ~~preference~~launches ~~testing~~of ~~for~~ our ~~Axium~~new ~~PGLA~~products, TurboHawk Plaque Excision System, Trailblazer Support Catheter and ~~Nylon~~PowerCross ~~microfilament~~PTA ~~coils~~balloon, to have a positive impact on sales going forward. We also ~~launched~~expect continued growth of our ~~Marksman~~EverFlex ~~delivery~~and ~~catheter~~Visi-Pro family of stents during the remainder of 2010, although we are prohibited from marketing and ~~Alligator~~promoting ~~Retrieval~~these ~~Device~~devices in the U.S. outside of their approved indication and, ~~Europe~~we ~~during~~remain cautious of the ~~third~~current ~~fiscal~~regulatory environment regarding the off-label utilization of our stents and the increased competition we may experience. • Net sales of our neurovascular products increased 44% to $49.1 million in the first quarter of 2010 compared to the first quarter of 2009 primarily as a result of the launch of our Pipeline Embolization Device in Europe and other international markets and continued market penetration of the Axium coil, Solitaire neuro stent and the Onyx Liquid Embolic System, partly offset by sales declines in older generation products. We believe our neurovascular business should continue to benefit from new product introductions, including our Pipeline and Solitaire FR devices, from the continued market penetration of the Axium coil and Onyx Liquid Embolic System, and expanded geographic presence during the remainder of 2010. • On a geographic basis, 59% of our net sales for the first quarter of 2010 were generated in the United States and 41% were generated outside the United States. Our international net sales increased 31% to $50.9 million in the first quarter of 2010 compared to the first quarter of 2009 as a result of the launch of our Pipeline Embolization Device and an increase in market penetration of our Solitaire neuro stent, Axium coil and Onyx Liquid Embolic System. We expect our international business to continue to benefit from ~~new~~our ~~product~~ability ~~introductions~~to sell our EverCross, ~~including~~NanoCross and PowerCross PTA balloon catheters, the recent launch of our Pipeline Embolization Device, the launch of our Axium MicroFx PGLA and ~~Alligator~~Nylon microfilament coils and Marksman delivery catheter, and expansion of sales of our plaque excision devices during the remainder of 2010. Changes in foreign currency exchange rates had a positive impact on our net sales for the first quarter of 2010 of approximately $2.9 million compared to the first quarter of 2009, ~~expanded~~principally ~~geographic~~resulting ~~presence~~from the relationship of the U.S. dollar as compared to the euro. At current exchange rates, we expect foreign currency exchange rates to have a minimal impact on our net sales during 2010 compared to our net sales during 2009. • Gross margin increased to 76.4% in the first quarter of 2010 compared to 69.1% in the first quarter of 2009 primarily attributable to realized manufacturing efficiencies and ~~improved~~volume growth. Product mix, margin improvement associated with selling our own line of PTA balloons, and favorable foreign exchange also contributed to the increase. We expect our gross margins to increase through our focus on manufacturing efficiencies and opportunities to increase product pricing. Gross margin for internal measurement purposes is defined as net sales less cost of goods sold, which excludes the amortization of intangible assets, divided by net sales. • Sales, general and administrative expenses declined to 50% of net sales in the first quarter of 2010 compared to 55% of net sales in the first quarter of 2009 primarily as a result of leverage on sales growth and cost management efforts. The first quarter of 2009 included a $3.4 million adjustment to increase reserves on our vacated FoxHollow leased facilities. See Note 6 to our consolidated financial statements for further discussion. We expect our sales, general and administrative expenses as a percentage of net sales to

• On a geographic basis, 61% of our net sales for the third fiscal quarter 2009 were generated in the U.S. and 39% were generated outside the U.S. Our international net sales increased 21% to $44.4 million in the third fiscal quarter 2009 compared to the third fiscal quarter 2008 driven by market penetration of the Axium coil and neuro stents, as well as the launch of our Pipeline device. We expect our international business to continue to benefit from our ability to sell our EverCross and NanoCross PTA balloon catheters outside the United States, the recent launch of our Pipeline Embolization Device in Europe and other international markets, and the launch of our Axium PGLA and Nylon microfilament coils, Marksman delivery catheter and Alligator Retrieval Device in Europe. Changes in foreign currency exchange rates had a negative impact on our net sales for the third fiscal quarter 2009 of approximately $1.7 million compared to the third fiscal quarter 2008, principally resulting from the relationship of the U.S. dollar as compared to the euro. We expect foreign currency exchange rates to have a positive impact on our net sales during the fourth fiscal quarter 2009 compared to our net sales during the same period during 2008.15

• Product gross margin increased to 75% in the third fiscal quarter 2009 compared to 64% in the third fiscal quarter 2008 primarily attributable to manufacturing efficiencies, including synergies related to the consolidation of our FoxHollow manufacturing operations, margin improvement associated with selling our own line of PTA balloons, product mix and volume growth. We expect to continue to increase our product gross margins through our focus on manufacturing efficiencies. Product gross margin for internal measurement purposes is defined as net product sales less product cost of goods sold, excluding amortization of intangible assets, divided by net product sales.

• Sales, general and administrative expenses declined to 49% of net product sales in the third fiscal quarter 2009 compared to 53% in the third fiscal quarter 2008 primarily due to continued expense leverage. We expect our sales, general and administrative expenses as a percentage of net product sales to continue to decline during the remainder of 2009 compared to 2008 primarily as a result of our anticipated continued leverage of our cost structure. We expect to continue to focus on our vital few programs and implement systems and processes to improve our sales execution.

• Our net income for the third fiscal quarter 2009 was $6.7 million, or $0.06 per basic and diluted common share, compared to a net loss of $7.3 million, or $0.07 per share, in the third fiscal quarter of 2008.

•continue ~~Our~~to ~~cash~~decline ~~and~~during ~~cash~~the ~~equivalents~~remainder ~~were $80.5 million at October 4, 2009, an increase~~ of ~~$20.1~~2010 ~~million~~ compared to ~~the end of the second fiscal quarter~~ 2009. ~~This increase was~~ primarily as a result of ~~cash~~our ~~provided~~ability byto ~~operating~~leverage ~~activities,~~our ~~totaling~~infrastructure ~~$20.9 million in the third fiscal quarter 2009. We plan~~ to ~~continue~~grow toexpenses ~~focus~~at ona ~~generating~~lesser ~~positive~~rate ~~cash~~than ~~flow~~our ~~from~~anticipated ~~operations~~revenue ~~during the remainder of 2009~~growth.

	•		Our net income in the first quarter of 2010 was $9.9 million, or $0.09 per diluted common share, compared to a net loss of $1.8 million, or $0.02 per diluted share, in the first quarter of 2009.

	•		We had $116.8 million of cash and cash equivalents at April 4, 2010, an increase of $18.8 million compared to December 31, 2009. This increase was primarily due to $17.3 million of cash provided by operating activities, which was driven by our operating performance partly offset by cash used for working capital. We plan to continue to focus on generating cash flow from operations during the remainder of 2010.

Items Impacting Comparability

The following items impacted the comparability of our financial results for the first quarters of 2010 and 2009:

First Quarter of 2010

	•		Charges relating to the estimated change in fair value of the contingent consideration of $2.5 million associated with the Chestnut acquisition.

	•		Income tax benefit of $1.0 million from the reduction in U.S. federal income tax due to recently passed legislation enabling us to utilize additional net operating loss carryforwards for alternative minimum tax purposes.

First Quarter of 2009

	•		Charge of $3.4 million to increase reserves on our vacated FoxHollow lease facilities.

	•		Gain of $4.1 million attributed to the divestiture of non-strategic investments.

Results of Operations

The following table sets forth, for the periods indicated, our results of operations expressed as dollar amounts (dollars in thousands, except per share amounts), and the changes between the specified periods expressed as percent increases or decreases or “NM” if such increases or decreases are not material or applicable:

	Three Months Ended									~~Nine Months Ended~~
	October 4,			September 28,			Percent			October 4,			September 28,			Percent
							Percent
	2009			2008			Change			2009			2008			Change
Results of Operations:	April 4, 2010			April 5, 2009			Change
Results of Operations:
Net sales	$	123,854		$	100,395			23.4	%
Sales:
Operating expenses:
Net product sales	$	112,838		$	100,018			12.8	%	$	322,319		$	296,577			8.7	%
Cost of goods sold (a)		29,227			30,988			-5.7	%
Research collaboration		—			7,011			(100.0	)%		—			19,426			(100.0	)%
Sales, general and administrative (a)		61,827			55,648			11.1	%
Net sales		112,838			107,029			5.4	%		322,319			316,003			2.0	%
Research and development (a)		13,839			11,578			19.5	%
Operating expenses:
Amortization of intangible assets		6,656			5,828			14.2	%
Product cost of goods sold (a)		28,608			36,182			(20.9	)%		90,074			102,442			(12.1	)%
Contingent consideration		2,498			—		NM
Research collaboration		—			2,100			(100.0	)%		—			5,647			(100.0	)%
Total operating expenses		114,047			104,042			9.6	%
Sales, general and administrative (a)		55,030			53,121			3.6	%		165,639			178,885			(7.4	)%
Income (loss) from operations		9,807			(3,647	)	NM
Research and development (a)		12,545			12,133			3.4	%		36,433			37,913			(3.9	)%
Other expense (income):
Amortization of intangible assets		6,802			8,101			(16.0	)%		18,444			24,285			(24.1	)%
Gain on investments, net		—			(4,067	)		-100.0	%
Contingent consideration		2,271			—			100.0	%		2,467			—			100.0	%
Interest expense, net		197			213			-7.5	%
Intangible asset impairment		—			—		NM				—			10,459			(100.0	)%
Other expense, net		354			2,208			-84.0	%
Total operating expenses		105,256			111,637			(5.7	)%		313,057			359,631			(13.0	)%
Income (loss) before income taxes		9,256			(2,001	)	NM
Income (loss) from operations		7,582			(4,608	)	NM				9,262			(43,628	)	NM
Income tax benefit		(608	)		(192	)		216.7	%
Other expense (income):
Net income (loss)	$	9,864		$	(1,809	)	NM
Gain on investments, net		—			(142	)	NM				(4,072	)		(542	)	NM
Earnings per share:
Interest expense (income), net		140			49		NM				575			(307	)	NM
Net income (loss) per common share:
Other (income) expense, net		(143	)		2,279		NM				1,354			192		NM
Basic	$	0.09		$	(0.02	)
Income (loss) before income taxes		7,585			(6,794	)	NM				11,405			(42,971	)	NM
Diluted	$	0.09		$	(0.02	)
Income tax expense (benefit)		849			516			64.5	%		(17,511	)		1,531		NM
Weighted average shares outstanding:
Net income (loss)	$	6,736		$	(7,310	)	NM			$	28,916		$	(44,502	)	NM
Basic		112,674,997			105,030,020
Earnings per share:
Diluted		114,386,308			105,030,020
Net income (loss) per common share:
Basic	$	0.06		$	(0.07	)				$	0.27		$	(0.43	)
Diluted	$	0.06		$	(0.07	)				$	0.27		$	(0.43	)
Weighted average shares outstanding:
Basic		110,507,687			104,474,600						107,080,500			104,276,029
Diluted		112,277,954			104,474,600						107,719,897			104,276,029

(a) Includes stock-based compensation ~~expenses~~charges of:

	Three Months Ended				Nine Months Ended
Cost of goods sold	$	142	$	245
	October 4,		September 28,		October 4,		September 28,
Sales, general and administrative		2,864		3,098
	2009		2008		2009		2008
Research and development		308		368
Product cost of goods sold	$	251	$	121	$	732	$	596
	$	3,314	$	3,711
Sales, general and administrative		2,975		2,572		9,089		9,608
Research and development		400		366		1,128		1,478
	$	3,626	$	3,059	$	10,949	$	11,682

2217

The following tables set forth, for the periods indicated, our net sales by segment and ~~geography~~ geography expressed as dollar amounts (in thousands) and the changes in net sales between the ~~specified~~ specified periods expressed as percentages or “NM” if such increases or decreases are not material or applicable:

	Three Months Ended							~~Nine Months Ended~~
	October 4,		September 28,		Percent			October 4,		September 28,		Percent
					Percent
	2009		2008		Change			2009		2008		Change
NET SALES BY SEGMENT:	April 4, 2010		April 5, 2009		Change
NET SALES BY SEGMENT:
Peripheral vascular:
Net product sales:
Plaque excision	$	20,485	$	18,308		11.9	%
Peripheral vascular:
Stents		29,873		28,174		6.0	%
Atherectomy	$	19,607	$	20,992		(6.6	)%	$	60,024	$	68,624		(12.5	)%
Thrombectomy and embolic protection		9,445		8,047		17.4	%
Stents		28,787		26,772		7.5	%		86,620		77,932		11.1	%
Procedural support and other		14,974		11,673		28.3	%
Thrombectomy and embolic protection		7,319		6,938		5.5	%		23,280		19,990		16.5	%
Total peripheral vascular		74,777		66,202		13.0	%
Procedural support and other		11,898		12,184		(2.3	)%		35,902		35,243		1.9	%
Neurovascular:
Total peripheral vascular		67,611		66,886		1.1	%		205,826		201,789		2.0	%
Embolic products and stents		32,470		19,547		66.1	%
Neurovascular:
Neuro access and delivery products and other		16,607		14,646		13.4	%
Embolic products		28,408		18,174		56.3	%		69,599		53,469		30.2	%
Total neurovascular		49,077		34,193		43.5	%
Neuro access and delivery products and other		16,819		14,958		12.4	%		46,894		41,319		13.5	%
Total net sales	$	123,854	$	100,395		23.4	%
Total neurovascular		45,227		33,132		36.5	%		116,493		94,788		22.9	%
Total net product sales		112,838		100,018		12.8	%		322,319		296,577		8.7	%
Research collaboration		—		7,011		(100.0	)%		—		19,426		(100.0	)%
Total net sales	$	112,838	$	107,029		5.4	%	$	322,319	$	316,003		2.0	%

	Three Months Ended								~~Nine Months Ended~~
	October 4,			September 28,		Percent			October 4,			September 28,		Percent
						Percent
	2009			2008		Change			2009			2008		Change
NET SALES BY GEOGRAPHY:	April 4, 2010			April 5, 2009		Change
NET SALES BY GEOGRAPHY:
United States	$	72,957		$	61,654		18.3	% `
United States	$	68,430		$	70,452		(2.9	)%	$	197,779		$	208,773		(5.3	)%
International		50,897			38,741		31.4	%
International:
Total net sales	$	123,854		$	100,395		23.4	%
Before foreign exchange impact		46,129			36,577		26.1	%		135,104			107,230		26.0	%
Foreign exchange impact		(1,721	)		—		—			(10,564	)		—		—
Total international		44,408			36,577		21.4	%		124,540			107,230		16.1	%
Total net sales	$	112,838		$	107,029		5.4	%	$	322,319		$	316,003		2.0	%

23Comparison of the Three Months Ended April 4, 2010 to the Three Months Ended April 5, 2009

Net sales. Net sales increased 23% to $123.9 million in the three months ended April 4, 2010 compared to $100.4 million in the three months ended April 5, 2009 driven by increased sales across all product categories, especially our neurovascular products and products sold internationally.

Net sales of peripheral vascular products. Net sales of our peripheral vascular products increased 13% to $74.8 million in the three months ended April 4, 2010 compared to $66.2 million in the three months ended April 5, 2009. Net sales in our plaque excision product line increased 12% to $20.5 million in the three months ended April 4, 2010 compared to $18.3 million in the three months ended April 5, 2009 primarily due to the launch of our new TurboHawk Plaque Excision System. Net sales in our stent product line increased 6% to $29.9 million in the three months ended April 4, 2010 compared to $28.2 million in the three months ended April 5, 2009 attributable to increased market penetration of both our EverFlex family of self-expanding stents and Visi-Pro balloon expandable stents. Net sales of our thrombectomy and embolic protection devices increased 17% to $9.4 million in the three months ended April 4, 2010 compared to $8.0 million in the three months ended April 5, 2009 due to increases in sales of our embolic protection devices. Net sales of our procedural support and other products increased 28% to $15.0 million in the three months ended April 4, 2010 compared to $11.7 million in the three months ended April 5, 2009 attributable to the ongoing global launch of our EverCross, NanoCross and PowerCross PTA balloons.

Net sales of neurovascular products. Net sales of our neurovascular products increased 44% to $49.1 million in the three months ended April 4, 2010 compared to $34.2 million in the three months ended April 5, 2009, driven by increases in all product categories, especially our embolic products and stents, which include coils, liquid embolics, Solitaire neuro stent and our Pipeline Embolization Device. Net sales of our embolic products and stents increased 66% to $32.5 million in the three months ended April 4, 2010 compared to $19.6 million in the three months ended April 5, 2009 primarily due to the launch of our Pipeline Embolization Device in Europe and other international markets, continued market penetration of the Axium coil, Solitaire neuro stent and the Onyx Liquid Embolic System, partially offset by sales declines in older generation products. Net sales of our neuro access and delivery products and other increased 13% to $16.6 million in the three months ended April 4, 2010 compared to $14.6 million in the three months ended April 5, 2009, primarily due to geographic mix, incremental revenue from products acquired from Chestnut and favorable foreign exchange.

Net sales by geography. Net sales in the United States increased 18% to $73.0 million in the three months ended April 4, 2010 compared to $61.7 million in the three months ended April 5, 2009 as a result of the launch of our TurboHawk

~~Comparison~~Plaque Excision System and increased market penetration of our Axium coil, embolic protection devices and Onyx Liquid Embolic System. International net sales increased 31% to $50.9 million in the ~~Three~~three ~~Months~~months ~~Ended~~ended ~~October~~April 4, ~~2009~~2010 compared to $38.7 million in the ~~Three~~three ~~Months~~months ~~Ended~~ended ~~September~~April 285, 2009 ~~2008~~and represented 41% and 39% of our total net sales during the three months ended April 4, 2010 and April 5, 2009, respectively. International growth was driven by the launch of our Pipeline Embolization Device and an increase in market penetration of our Solitaire neuro stent, Axium coil and Onyx Liquid Embolic System. Our international net sales in the three months ended April 4, 2010 included a favorable foreign currency exchange rate impact of approximately $2.9 million compared to the same quarter in the prior year.

~~Net~~Cost ~~sales~~of goods sold. ~~Net~~Costs ~~sales~~of ~~increased~~goods 5sold decreased 6% to $~~112~~29.82 million in the three months ended ~~October~~ April 4, ~~2009~~ 2010 compared to $~~107~~31.0 million in the first quarter of prior year. As a percentage of net sales, cost of goods sold declined to 24% of net sales in the three months ended ~~September~~April 284, ~~2008.~~2010 compared ~~Our~~to 31% of net sales in the three months ended ~~October~~April 45, 2009. ~~did~~This ~~not~~decline ~~include~~was ~~any~~primarily attributable ~~research~~to ~~collaboration~~realized ~~revenue~~manufacturing ~~compared~~efficiencies and volume growth. Product mix, margin improvement associated with selling our own line of PTA balloons, and favorable foreign exchange $7also contributed in the decline.~~0 million~~ The decline was also attributed to a favorable shift in sales to our direct sales channel in Europe from our distributor channel. In our peripheral vascular segment, cost of ~~research~~goods ~~collaboration~~sold ~~revenue~~as ~~for~~a percent of net sales declined to 28% in the three months ended April 4, ~~September~~2010 compared to 33% in the three months ended April 285, ~~2008.~~2009 ~~Net~~as a result of improved ~~product~~manufacturing efficiencies, sales ~~increased~~mix, ~~13%~~improvement toassociated ~~$112~~with selling our own line of PTA balloons and volume growth.~~8 million~~ In our neurovascular segment, cost of goods sold as a percent of net sales declined to 17% in the three months ended ~~October~~April 4, ~~2009~~2010 compared to ~~$100.0 million~~ 27% in the three months ended ~~September~~April 285, ~~2008~~2009 ~~driven~~attributable byto ~~strong~~sales ~~growth~~mix, ofmanufacturing ~~our neurovascular~~efficiencies, ~~products~~volume growth and favorable inforeign ~~our international markets~~exchange.

~~Net~~Sales, ~~sales~~general ofand ~~peripheral~~administrative ~~vascular products~~expense. ~~Net~~Sales, ~~sales~~general ofand ~~our~~administrative ~~peripheral vascular products increased~~expense 1increased 11% to $6761.68 million in the three months ended ~~October~~April 4, ~~2009~~2010 compared to $6655.96 million in ~~the~~ the three months ended ~~September~~April 285, ~~2008.~~2009 ~~Net~~primarily ~~sales~~attributable into ~~our~~increases ~~stent~~of ~~product line increased 8% to~~ $284.8 7 million in personnel ~~the~~costs ~~three~~as ~~months~~a ~~ended~~result ~~October 4,~~of ~~2009~~annual ~~compared~~merit toincreases and additional headcount and $262.8 million in ~~the three months~~ ~~ended~~travel ~~September 28~~related costs, ~~2008.~~training ~~This~~and ~~increase~~education ~~was~~and ~~attributable~~other toemployee ~~increased~~related ~~market~~expenses. ~~penetration~~The ofthree ~~our~~months ~~EverFlex~~ended ~~family~~April 5, of2009 ~~stents~~included ~~and~~a ~~balloon expandable stents~~$3.4 million ~~Net~~adjustment ~~sales~~to ofincrease our ~~thrombectomy~~reserves ~~and~~on ~~embolic~~the vacated ~~protection~~leased ~~devices~~facilities ~~increased~~as 5%a toresult ~~$7.3 million~~of inour ~~the~~consolidation ~~three~~of ~~months~~the ~~ended~~FoxHollow ~~October 4,~~operations ~~2009~~(see ~~compared to~~Note $6~~.9 million~~ into ~~the~~our consolidated ~~three~~financial ~~months~~statements). ~~ended September 28~~Sales, ~~2008~~general ~~largely~~and ~~due~~administrative toexpense ~~increases~~as ina ~~sales~~percentage of ~~our~~net ~~embolic protection devices. Net~~ sales ofdeclined ~~our~~to ~~procedural support and other products declined 2~~50% toof ~~$11.9 million~~net sales in the three months ended ~~October~~April 4, ~~2009~~2010 compared to ~~$12.2 million~~55% of net sales in the three months ended ~~September~~April 285, ~~2008~~2009 ~~largely~~as ~~due~~a toresult ~~the~~of ~~transition~~leverage ~~from~~on ~~selling~~sales ~~Invatec PTA~~growth ~~balloons to selling our own EverCross~~ and ~~NanoCross~~cost ~~PTA~~management ~~balloons.~~efforts ~~With regard to our atherectomy business, we continued to face competition~~ and ~~recorded~~the animpact ~~estimate~~ of ~~$1.0~~the ~~million~~vacated ~~for sales returns~~leased ~~resulting~~facilities ~~from~~charge ~~product transitions to our next generation plaque excision devices. Atherectomy sales declined 7% to $19.6 million~~ in the ~~three~~first ~~months~~quarter ~~ended~~of ~~October 4,~~ 2009 ~~compared to $21~~.0 ~~million in the three months ended September 28, 2008.~~

~~Net~~Research ~~sales~~and ~~of neurovascular products~~development. ~~Net~~Research ~~sales~~and ofdevelopment ~~our~~expense ~~neurovascular products~~ increased 3720% to $4513.28 million in the three months ended ~~October~~April 4, ~~2009~~2010 compared to $3311.16 million in the three ~~months~~ ~~ended September 28, 2008, driven by increases in all product categories. Net sales of our embolic products increased 56% to $28.4 million in the three~~ months ended ~~October~~April 45, 2009 ~~compared~~ ~~to $18.2 million in the three months ended September 28, 2008 primarily~~ due to ~~the~~increased ~~continued~~clinical ~~market penetration~~activity ~~of the Axium coil~~ and the ~~Onyx~~additional ~~Liquid~~activity ~~Embolic~~related ~~System~~to ~~as well as the launch of~~ our ~~Pipeline~~ ~~Embolization~~Chestnut ~~Device in Europe and other international markets~~acquisition. ~~Sales of our neuro access~~ ~~and~~Research ~~delivery products~~ and ~~other~~development ~~increased~~expense 12was 11% toof ~~$16.8 million~~net sales in the three months ended ~~October~~April 4, ~~2009~~ 2010 compared to ~~$14.9 million~~12% of net sales in the three months ended ~~September~~April 285, ~~2008 largely as a result of volume growth across multiple product lines including our catheters, neuro balloons and guidewires~~2009.

~~Research~~Amortization ~~collaboration~~of ~~(revenue)~~intangible assets. ~~Revenue~~Amortization ~~from~~of ~~our~~intangible ~~former~~assets ~~research~~increased ~~collaboration~~14% ~~with~~to ~~Merck was~~ $6.7 million in the three months ended April 4, 2010 compared to $5.08 million ~~for~~in the three months ended ~~September~~April 285, 2009 ~~2008~~due to the amortization of definite-lived intangible assets acquired in connection with the Chestnut acquisition.

~~Net~~Contingent ~~sales by geography~~consideration. ~~Net~~The ~~sales~~change in ~~the~~fair ~~U.S.~~value ~~were~~of ~~$68.4 million~~contingent inconsideration ~~the~~associated ~~three~~with ~~months ended October~~our 4,acquisition ~~2009~~of ~~compared~~Chestnut towas $702.45 million in the three months ended ~~September~~April 28, 2008. Net sales in the U.S. in the three months ended September 28, 2008 included $7.0 million in research collaboration revenue from Merck. Net product sales in the U.S. increased in the three months ended October 4, ~~2009~~ compared to the three months ended September 28, 2008 primarily as a result of increased market penetration of our Onyx Liquid Embolic System, embolic protection devices, EverFlex family of stents and Axium coils2010. ~~International~~For ~~net sales increased 21% to $44.4 million in the three~~additional ~~months ended October 4~~discussion, ~~2009~~see ~~compared~~Notes ~~to $36.6 million in the three months ended September 28, 2008 and represented 39% and 37% of our total net product sales during the three months ended October~~ 4~~, 2009~~ and ~~September 28,~~5 ~~2008, respectively. International sales growth was driven by an increase in market penetration~~ of ~~Axium coils and neuro stents and launch of~~ our ~~Pipeline~~consolidated ~~Embolization~~financial ~~Device and PTA balloons~~statements. ~~Our international net sales in the three months ended October 4, 2009 included~~ ~~an unfavorable foreign currency exchange rate impact of approximately $1.7 million principally resulting from the relationship of the U.S. dollar to the euro in comparison with the prior year.~~

~~Product~~Gain ~~cost~~on ofinvestments, ~~goods sold~~net. AsGain aon ~~percentage of net product sales~~investments, ~~product cost of goods sold declined to 25% of~~ net ~~product~~was ~~sales~~$4.1 million in the three months ended ~~October~~ April 45, 2009 ~~compared~~for ~~to 36% of net product sales in~~ the ~~three~~realized ~~months~~gain ~~ended~~on ~~September 28, 2008. The improvement in our product cost of goods sold were driven mainly by improvements in our peripheral vascular business segment as well~~ the ~~mix~~sale of ~~neurovascular~~non-strategic ~~products,~~investment ~~which generally have lower product cost of goods sold~~assets.

InInterest ~~our~~expense, ~~peripheral~~net. ~~vascular~~Interest ~~segment~~expense, ~~product cost of goods sold as a percent of~~ net ~~product~~was ~~sales declined~~$197,000 ~~to 26%~~ in the three months ended ~~October~~April 4, ~~2009~~ 2010 compared to ~~41%~~$213,000 in the three months ended ~~September~~ April 285, ~~2008 primarily as a result of improved manufacturing efficiencies, including~~2009. ~~synergies related to the consolidation of our FoxHollow manufacturing~~

24Other expense, net. Other expense, net was $354,000 in the three months ended April 4, 2010 compared to income of $2.2 million in the three months ended April 5, 2009, related to net foreign currency exchange rate transaction gains and losses. For the three months ended April 4, 2010, we recorded a $2.6 million loss which was substantially offset by a $2.3 million gain on forward foreign exchange contracts.

~~operations,~~Income ~~margin~~tax ~~improvement~~benefit. ~~associated~~We ~~with~~recorded ~~selling~~an ~~our~~income ~~own~~tax ~~line~~benefit of ~~PTA~~$608,000 ~~balloons~~for ~~and~~the ~~volume~~three months ~~growth.~~ended ~~Also~~April 4, ~~contributing~~2010 compared to ~~the~~an ~~decline~~income oftax ~~product~~benefit ~~cost~~ of ~~goods~~$192,000 ~~sold~~for asthe athree ~~percentage~~months ofended ~~net~~April ~~product~~5, ~~sales~~2009. inThe ~~our~~income ~~peripheral~~tax ~~vascular~~benefit ~~segment~~for ~~were additional costs incurred in~~ the three months ended ~~September~~April 284, ~~2008~~2010 ~~related~~included toa ~~the~~$1.0 million reduction ~~consolidation~~in ofthe ~~our~~U.S. ~~FoxHollow~~federal ~~manufacturing~~income ~~operations that~~tax ~~did~~due ~~not~~to ~~recur~~recently inpassed ~~the~~legislation ~~three~~enabling ~~months~~us ~~ended~~to ~~October 4,~~utilize additional ~~2009.~~net ~~The~~operating ~~decrease~~loss ~~was~~carryforwards ~~partially~~for ~~offset~~alternative ~~by an~~minimum ~~increase~~tax inpurposes ~~excess~~partly ~~and~~offset ~~obsolete~~by income ~~inventory~~tax expense ~~due~~recorded toin ~~product~~foreign ~~transitions~~and ofstate ~~our plaque excision systems~~jurisdictions.

In our neurovascular segment, product cost of goods sold as a percent of net product sales decreased to 24% in the three months ended October 4, 2009 compared to 26% in the three months ended September 28, 2008 as a result of cost leverage due to volume growth. The decrease was partially offset by an increase in excess and obsolete inventory expense as a result of recording additional reserves due to product transitions of our coil products.

Research collaboration (expense). Expense incurred as a result of our former research collaboration with Merck was $2.1 million for the three months ended September 28, 2008.

Sales, general and administrative. Sales, general and administrative expense increased 4% to $55.0 million in the three months ended October 4, 2009 compared to $53.1 million in the three months ended September 28, 2008. Sales, general and administrative expense as a percentage of net product sales declined to 49% of net product sales in the three months ended October 4, 2009 compared to 53% of net product sales in the three months ended September 28, 2008 primarily due to increased net product sales and continued sales productivity improvement and expense leverage.

Research and development. Research and development expense increased 3% to $12.5 million in the three months ended October 4, 2009 compared to $12.1 million in the three months ended September 28, 2008. Research and development expense was 11% of net sales in the three months ended October 4, 2009 and September 28, 2008.

Amortization of intangible assets. Amortization of intangible assets declined 16% to $6.8 million in the three months ended October 4, 2009 compared to $8.1 million in the three months ended September 28, 2008 primarily due to certain intangible assets becoming fully amortized and lower gross intangible balances for certain intangible assets resulting from the impairment charges we recognized in 2008, partly offset by the amortization of intangible assets purchased in connection with our acquisition of Chestnut.

Contingent consideration. Under the terms of the agreement and plan of merger with Chestnut, we may be obligated to make a milestone payment of up to $75 million upon the FDA pre-market approval of the Pipeline device. The change in fair value of the contingent consideration for the three months ended October 4, 2009 was $2.3 million. We anticipate we likely will incur significant charges or recognize significant benefits associated with future changes in fair value of the contingent consideration. For additional discussion, see Note 3 and Note 5 of our consolidated financial statements contained elsewhere in this report.

Interest expense (income), net. Interest expense, net was $140,000 in the three months ended October 4, 2009 compared to $49,000 in the three months ended September 28, 2008. This increase was due primarily to lower levels of interest income on invested cash balances due to lower interest rates in the third fiscal quarter 2009 compared to the third fiscal quarter 2008. Interest expense for the third fiscal quarter 2009 was $267,000 and interest income was $127,000. Interest expense for the third fiscal quarter 2008 was $311,000 and interest income was $262,000.

Other (income) expense, net. Other income, net was $143,000 in the three months ended October 4, 2009 compared to other expense, net of $2.3 million in the three months ended September 28, 2008. The other (income) expense, net in each of the three months ended October 4, 2009 and September 28, 2008 was primarily due to net foreign currency exchange rate gains and losses. The volatility of the U.S. dollar compared to the euro and other currencies positively impacted our foreign currency-designated accounts receivable in the third fiscal quarter 2009. This impact was reduced by the loss of $1.5 million incurred on a forward exchange contract we entered into during the third fiscal quarter 2009 to partially offset our exposure to foreign currency exchange rate fluctuations. The forward contract was settled prior to the end of the third fiscal quarter 2009. There were no outstanding forward foreign exchange contracts as of October 4, 2009.

Income tax expense (benefit). We recorded income tax expense of $849,000 for the three months ended October 4, 2009 compared to income tax expense of $516,000 for the three months ended September 28, 2008. The 2009 tax expense includes anticipated alternative minimum tax in the U.S., income tax in foreign jurisdictions, and income tax in several states. For the three months ended September 28, 2008, we incurred income tax expense related to certain of our European sales offices.

Comparison of the Nine Months Ended October 4, 2009 to the Nine Months Ended September 28, 2008

Net sales. Net sales increased to $322.3 million in the nine months ended October 4, 2009 compared to $316.0 million in the nine months ended September 28, 2008. Our net sales in the nine months ended October 4, 2009 did not include any research collaboration revenue compared with $19.4 million of research collaboration revenue for the nine months ended September 28, 2008. Net product sales increased 9% to $322.3 million in the nine months ended October 4, 2009 compared to $296.6 million in the nine months ended September 28, 2008 driven by strong results across all product categories, with the exception of our atherectomy products, which declined as a result of continued competition.

Net sales of peripheral vascular products. Net sales of our peripheral vascular products increased 2% to $205.8 million in the nine months ended October 4, 2009 compared to $201.8 million in the nine months ended September 28, 2008. Net sales in our stent product line increased 11% to $86.6 million in the nine months ended October 4, 2009 compared to $77.9 million in the nine months ended September 28, 2008. This increase was attributable to increased market penetration of our EverFlex family of stents and balloon expandable stents. Net sales of our atherectomy products decreased 13% to $60.0 million in the nine months ended October 4, 2009 compared to $68.6 million in the nine months ended September 28, 2008 due to continued competition. Net sales of our thrombectomy and embolic protection devices increased 16% to $23.3 million in the nine months ended October 4, 2009 compared to $20.0 million in the nine months ended September 28, 2008 largely due to increases in sales of our embolic protection devices. Net sales of our procedural support and other products increased 2% to $35.9 million in the nine months ended October 4, 2009 compared to $35.3 million in the nine months ended September 28, 2008.

Net sales of neurovascular products. Net sales of our neurovascular products increased 23% to $116.5 million in the nine months ended October 4, 2009 compared to $94.8 million in the nine months ended September 28, 2008, driven by increases in all product categories. Net sales of our embolic products increased 30% to $69.6 million in the nine months ended October 4, 2009 compared to $53.5 million in the nine months ended September 28, 2008 primarily due to the continued market penetration of the Onyx Liquid Embolic System, Axium coil and neuro stents and the launch of our Pipeline Embolization Device in Europe and other international markets. Sales of our neuro access and delivery products and other increased 13% to $46.9 million in the nine months ended October 4, 2009 compared to $41.3 million in the nine months ended September 28, 2008 largely as a result of volume growth across multiple product lines including our catheters, neuro balloons and guidewires.

Research collaboration (revenue). Revenue from our former research collaboration with Merck was $19.4 million for the nine months ended September 28, 2008.

Net sales by geography. Net sales in the U.S. were $197.8 million in the nine months ended October 4, 2009 compared to $208.8 million in the nine months ended September 28, 2008. Net sales in the U.S. in the nine months ended September 28, 2008 included $19.4 million in research collaboration revenue from Merck. Net product sales in the U.S. increased primarily as a result of increased market penetration of our Onyx Liquid Embolic System, EverFlex family of stents, and embolic protection devices. International net sales increased 16% to $124.5 million in the nine months ended October 4, 2009 compared to $107.2 million in the nine months ended September 28, 2008 and represented 39% and 36% of our total net product sales during the nine months ended October 4, 2009 and September 28, 2008, respectively. International growth was driven by an increase across all product categories including market penetration of our Axium coil and neuro stents and launch of our Pipeline Embolization Device and PTA balloons. Our international net sales in the nine months ended October 4, 2009 included an unfavorable foreign currency exchange rate impact of approximately $10.6 million principally resulting from the relationship of the U.S. dollar to the euro compared to the prior year.

Product cost of goods sold. As a percentage of net product sales, product cost of goods sold declined to 28% of net product sales in the nine months ended October 4, 2009 compared to 35% of net product sales in the nine months ended September 28, 2008. The improvement in our product cost of goods sold was driven mainly by improvements in our peripheral vascular business segment as well as the mix of neurovascular products sold, which generally have lower product cost of goods sold.

In our peripheral vascular segment, product cost of goods sold as a percent of net product sales declined to 30% the nine months ended October 4, 2009 compared to 38% in the nine months ended September 28, 2008 as a result of improved

manufacturing efficiencies including synergies related to the consolidation of our FoxHollow manufacturing operations, margin improvement associated with selling our own line of PTA balloons and volume growth. During the nine months ended September 28, 2008 we also incurred costs related to the consolidation of our FoxHollow manufacturing operations that did not recur in the nine months ended October 4, 2009.

In our neurovascular segment, product cost of goods sold as a percent of net product sales declined to 24% in the nine months ended October 4, 2009 compared to 26% in the nine months ended September 28, 2008 as a result of leverage due to volume growth.

Research collaboration (expense). Expense incurred as a result of our former research collaboration with Merck was $5.6 million for the nine months ended September 28, 2008.

Sales, general and administrative. Sales, general and administrative expense declined 7% to $165.6 million in the nine months ended October 4, 2009 compared to $178.9 million in the nine months ended September 28, 2008 primarily as a result of $7.1 million of synergies related to the consolidation of our FoxHollow facilities and cost management efforts, including a decrease of marketing costs of $2.2 million and personnel costs of $1.9 million, slightly offset by $3.4 million of expense recorded in the first quarter 2009 to increase reserves on our vacated FoxHollow leased facilities. In connection with the resignation of our former chairman, president and chief executive officer, we made and expensed a lump sum cash payment of $1.3 million and incurred $1.5 million of non-cash stock-based compensation expense in the second fiscal quarter 2008. Sales, general and administrative expense as a percentage of net product sales declined to 51% of net product sales in the nine months ended October 4, 2009 compared to 60% of net product sales in the nine months ended September 28, 2008 primarily due to higher net product sales, improved sales productivity and continued expense leverage.

Research and development. Research and development expense decreased 4% to $36.4 million in the nine months ended October 4, 2009 compared to $37.9 million in the nine months ended September 28, 2008. Research and development expense decreased to 11% of net sales in the nine months ended October 4, 2009 compared to 12% of net sales in the nine months ended September 28, 2008.

Amortization of intangible assets. Amortization of intangible assets decreased to $18.4 million in the nine months ended October 4, 2009 compared to $24.3 million in the nine months ended September 28, 2008, primarily as a result of lower gross intangible balances for certain intangible assets as a result of the impairment charges we recognized in 2008 and the full amortization of certain intangible assets, partially offset by the amortization of intangible assets purchased in connection with our acquisition of Chestnut.

Contingent consideration. The change in fair value of contingent consideration in connection with our acquisition of Chestnut was $2.5 million for the nine months ended October 4, 2009. For additional discussion, see Note 3 and Note 5 of our consolidated financial statements.

Intangible asset impairment. Intangible asset impairment was $10.5 million in the nine months ended September 28, 2008 as a result of the termination of the Merck collaboration and license agreement. See Note 10 to our consolidated financial statements.

Gain on investments, net. Gain on investments, net was $4.1 million in the nine months ended October 4, 2009 and was attributed to a $4.1 million realized gain on the sale of non-strategic investment assets in the first fiscal quarter 2009.

Interest expense (income), net. Interest expense, net was $575,000 in the nine months ended October 4, 2009 compared to interest income, net of $307,000 in the nine months ended September 28, 2008. This change was due primarily to lower interest rates on invested cash balances in the nine months ended October 4, 2009 compared to the same period in the prior year. Interest expense for the nine months ended October 4, 2009 was $818,000 and interest income was $243,000. Interest expense for the nine months ended September 28, 2008 was $891,000 and interest income was $1.2 million.

Other (income) expense, net. Other expense, net was $1.4 million in the nine months ended October 4, 2009 compared to $192,000 in the nine months ended September 28, 2008. Other expense, net in each of the nine months ended October 4, 2009 and September 28, 2008 was primarily due to net foreign currency exchange rate gains and losses. The volatility of the U.S. dollar compared to the euro and other currencies negatively impacted our accounts receivable denominated in foreign currencies during the first fiscal quarter 2009 and positively impacted our foreign currency-designated accounts receivable during the second and third fiscal quarters 2009. Other expense, net for the nine months ended October 4, 2009 includes losses of $3.1 million on forward foreign exchange contracts we entered into during the second and third fiscal

quarters 2009 to partially offset our exposure to foreign currency exchange rate fluctuations. The forward contracts were settled prior to the end of the second and third fiscal quarters 2009, and there were no outstanding forward exchange contracts as of October 4, 2009.

Income tax expense (benefit). We recorded an income tax benefit of $17.5 million for the nine months ended October 4, 2009 compared to an expense of $1.5 million for the nine months ended September 28, 2008. In connection with our acquisition of Chestnut, we have established net deferred tax liabilities which resulted in the reversal of $19.0 million of existing deferred tax valuation allowance. The reversal of our deferred tax valuation allowance is recorded as a tax benefit on our consolidated statements of operations. For the nine months ended October 4, 2009, the tax expense amount also includes anticipated alternative minimum tax, income tax in foreign jurisdictions, state income tax in several states and income tax expense related to certain of our European sales offices. For the nine months ended September 28, 2008, we incurred income tax expense related to certain of our European sales offices.

Liquidity and Capital Resources

	October 4,		December 31,
Balance Sheet Data	2009		2008
	(in thousands)
Cash and cash equivalents	$	80,504	$	59,652
Total current assets		212,288		187,123
Total assets		871,910		720,664
Total current liabilities		72,042		67,448
Long-term debt		4,583		6,458
Total liabilities		134,708		80,123
Total stockholders’ equity		737,202		640,541

The following table highlights several items from our consolidated balance sheets (in thousands):

Cash and cash equivalents. Our cash and cash equivalents available to fund our current operations were $80.5 million and $59.7 million at October 4, 2009 and December 31, 2008, respectively. We believe our cash and cash equivalents and current and anticipated financing arrangements will be sufficient to meet our liquidity requirements through at least the next 12 months. Our cash is primarily invested in highly liquid prime or treasury money market funds.


	April 4,		December 31,
Balance Sheet Data	2010		2009

Cash and cash equivalents	$	116,801	$	98,050
Total current assets		260,129		240,460
Total assets		908,782		896,289
Total current liabilities		66,429		73,929
Long-term debt		3,333		3,958
Total liabilities		136,187		141,795
Total stockholders’ equity		772,595		754,494

~~Letters~~Working ~~of credit and restricted cash. As of October 4, 2009, we had outstanding commitments of~~capital $4.7 million which are supported by irrevocable standby letters of credit and restricted cash. The letters of credit and restricted cash support various obligations, such as operating leases, tender arrangements with customers and automobile leases.

~~Operating~~Cash ~~activities~~and cash equivalents. ~~Net~~Our cash ~~provided~~and bycash ~~operations~~equivalents ~~during~~available ~~the~~to ~~nine~~fund ~~months~~our ~~ended~~current ~~October 4, 2009~~operations ~~was~~were $47116.48 million ~~compared~~and to $3098.51 million ~~used~~at ~~in operations during the nine months ended September~~April 284, ~~2008.~~2010 ~~We generated cash from operations during the first nine months of 2009 as a result of our improved operating results~~ and ~~continued working capital management. During the nine months ended October~~December 431, 2009, ~~our net income included a non-cash income tax benefit of $19~~respectively.~~0 million~~ ~~recorded in connection with our acquisition of Chestnut (see Note 5 of our consolidated~~We ~~financial~~expect ~~statements).~~to ~~Our~~continue ~~net~~to ~~income~~generate ~~also included approximately $37.8 million of non-~~cash ~~charges~~ ~~for~~from ~~depreciation~~operations ~~and~~during ~~amortization~~the ~~and~~remainder ~~non-cash~~of ~~stock-based~~2010, ~~compensation~~although ~~expense as compared~~no ~~with~~assurance ~~$44.7 million~~can ~~during~~be ~~the~~provided ~~first~~that ~~nine~~we ~~months~~will ofdo ~~2008.~~so, Inespecially ~~the~~if ~~nine~~we ~~months~~incur ~~ended~~significant ~~September 28,~~unanticipated ~~2008,~~costs ~~cash~~or ~~used~~do innot ~~operations~~achieve ~~was primarily a result of~~ our anticipated net ~~loss~~sales ~~and increased working capital requirements~~ during the ~~prior~~remainder ~~periods, which contained certain non-recurring items. These non-recurring items included a reduction~~ of ~~deferred revenue of $9~~2010.~~0 million~~ ~~associated~~We ~~with~~believe our ~~former~~cash ~~research~~and ~~collaboration~~cash ~~with Merck~~equivalents, ananticipated ~~increase~~cash infrom ~~accrued~~operations ~~litigation~~and ofcurrent ~~$15.4 million as a result of our coil litigation settlement,~~ and ~~$10.5 million~~anticipated ~~related to the Merck asset impairment.~~financing Wearrangements ~~expect~~will tobe ~~continue~~sufficient to ~~focus~~meet onour ~~generating~~liquidity ~~cash~~requirements ~~from~~through ~~operations~~at ~~during~~least the ~~remainder~~next ~~of 2009~~12 months.

~~Investing~~Letters ~~activities.~~of ~~Cash~~credit ~~used~~and inrestricted ~~investing activities was $28~~cash.~~4 million~~ ~~during~~As ~~the~~of ~~nine months ended October~~April 4, ~~2009 compared to $7.3 million used in investing activities during the nine months ended September 28~~2010, ~~2008. During the nine months ended October 4, 2009 in connection with the acquisition of Chestnut,~~ we ~~paid~~had ~~$24.7 million,~~outstanding ~~net~~commitments of ~~cash received, for the cash portion of the acquisition consideration to Chestnut’s stockholders. During the nine months ended October 4, 2009, we also received~~ $4.1 6 million inwhich ~~proceeds~~are ~~from~~supported ~~the~~by ~~sale~~irrevocable ofstandby ~~non-strategic~~letters ~~investment~~of ~~assets, increased~~credit ~~our~~and restricted cash ~~by $2~~.~~0 million~~ ~~and purchased $3.8 million of property and equipment~~The ~~and~~letters ~~$1.8 million~~ of ~~patents~~credit and ~~licenses.~~restricted ~~Cash~~cash ~~used~~support invarious ~~investing activities during the nine months ended September 28~~obligations, ~~2008~~such ~~was~~as ~~primarily~~operating ~~due to purchases of $9.0 million of property and equipment~~leases, tender ~~$7.5 million~~arrangements ~~paid in connection~~ with ancustomers ~~earn-out contingency of a previous acquisition~~ and ~~$2.3 million~~automobile ~~of payments for patents and licenses, partially offset by $9~~leases.~~7 million in proceeds from the~~ ~~sale of short-term investments.~~

28Financing history. Although we recognized net income for the first quarter of 2010 and during the full year 2009, prior to such time, we generated significant operating losses including $199.4 million of cumulative non-cash charges for acquired in-process research and development and $299.3 million of non-cash asset impairment charges of goodwill and intangible assets that resulted in an accumulated deficit of $1.1 billion as of April 4, 2010. Historically, our liquidity needs have been met primarily through equity issuances, our bank financing with Silicon Valley Bank and more recently cash generated from operations.

Credit facility. Our operating subsidiaries, ev3 Endovascular, Inc., ev3 International, Inc., Micro Therapeutics, Inc. and FoxHollow Technologies, Inc. are parties to a loan and security agreement, with Silicon Valley Bank, which was amended most recently in December 2008. The amended facility consists of a $50.0 million revolving line of credit and a $10.0 million term loan. The revolving line of credit expires on June 25, 2010 and the term loan matures on June 23, 2012. As of April 4, 2010, we had $5.8 million outstanding under the term loan and no outstanding borrowings under the revolving line of credit; however, we had $935,000 of outstanding letters of credit issued by Silicon Valley Bank, which reduced the maximum amount available under our revolving line of credit to $49.1 million. In conjunction with the expiration of our line of credit in June 2010, we expect to pay off our term loan and renegotiate or renew a line of credit with agreeable terms.

Cash flows

Operating activities. Net cash provided by operating activities during the three months ended April 4, 2010 was $17.3 million compared to $6.5 million during the three months ended April 5, 2009. We generated cash from operations during the first quarter of 2010 as a result of net income of $9.9 million partly offset by cash used for working capital. Our net income for the three months ended April 4, 2010 included $12.5 million of non-cash charges for depreciation, amortization and stock-based compensation expense and $2.5 million of contingent consideration compared with $12.3 million of non-cash charges for depreciation, amortization and stock-based compensation expense for the three months

~~Financing activities. Cash provided by financing activities was $1.6 million during the nine months~~ ended ~~October~~April 45, 2009 ~~compared to cash provided by financing activities of $2~~.~~5 million during~~ ~~the nine months ended September 28, 2008.~~ During the ~~nine~~three months ended ~~October~~April 45, 2009, the cash provided by ~~financing~~ operating activities was ~~generated~~ primarily ~~from~~a ~~proceeds~~result of ~~employee~~strong ~~stock purchase~~working ~~plan~~capital ~~purchases~~management ~~and exercise of stock options, partially~~ offset by ~~payments~~a onnet ~~our~~loss ~~term loan~~of ~~with Silicon Valley Bank~~$1. ~~Cash provided by financing activities during the nine months ended~~8 ~~September 28, 2008 reflects proceeds from stock option exercises and employee stock purchase plan purchases~~million.

~~Contractual~~Investing activities. Net cash ~~obligations.~~used ~~Except~~in asinvesting ~~noted~~activities ~~below,~~during ~~there~~the ~~were~~three nomonths ~~material~~ended ~~changes~~April 4, 2010 was $2.3 million compared to ~~our~~cash provided by investing activities of $1.2 million during the ~~contractual~~three ~~cash~~months ~~obligations~~ended asApril 5, ~~set~~2009. ~~forth~~During inthe ~~our~~three ~~annual~~months ~~report~~ended onApril 4, ~~Form~~2010, ~~10-K~~we ~~for~~purchased $1.4 million of property and equipment and $841,000 of patents and licenses. During the ~~year~~three months ended April 5, 2009, we received $4.1 million in proceeds from the sale of short-term investments, ~~December~~increased our restricted cash by $1.4 31million, ~~2008~~and purchased $732,000 of property and equipment and $681,000 of patents and licenses.

~~Under~~Financing ~~the~~activities. ~~terms~~Cash ofprovided ~~the~~by ~~Chestnut~~financing ~~acquisition~~activities ~~agreement,~~was we$4.2 million ~~may~~and be$563,000 ~~obligated~~during the tothree ~~make~~months anended ~~additional milestone-based~~April 4, ~~payment~~2010 ~~of cash~~ and ~~equity~~April 5, ~~totaling~~2009, uprespectively. toDuring ~~$75 million upon~~ the ~~FDA~~three ~~pre-market~~months ~~approval~~ended ofApril 4, ~~the~~2010, ~~Pipeline~~cash ~~device.~~provided ~~This~~by ~~milestone-based~~financing ~~contingent~~activities ~~payment~~was ~~could~~generated ~~range~~primarily from: ~~(1)~~ $754.8 million ~~upon~~of ~~FDA~~proceeds ~~approval~~from ~~prior~~stock tooption ~~October 1,~~exercises ~~2011,~~partly ~~(2)~~offset ~~$75 million~~by ~~less~~payments ~~$3.75 million~~on ~~per~~our ~~month upon~~term ~~FDA~~loan ~~approval~~with Silicon ~~from~~Valley ~~October 1,~~Bank. ~~2011~~During ~~through~~the ~~December 31,~~three ~~2012~~months ~~and~~ended ~~(3)~~April no5, ~~payment~~2009, ~~required~~cash ifprovided ~~FDA approval is not obtained~~ by ~~December 31,~~financing activities ~~2012.~~was ~~The~~generated ~~milestone-based~~primarily ~~payment~~from ~~of up to~~ $751.2 million~~, at~~ ~~our~~of ~~election,~~proceeds ~~will~~from ~~consist~~employee ofstock ~~cash~~purchases and stock ~~equity~~option ~~ranging~~exercises, ~~from~~partly ~~30%~~offset ~~cash~~by ~~and~~payments ~~70%~~on ~~equity~~our toterm ~~85%~~loan ~~cash and~~with ~~15%~~Silicon ~~equity,~~Valley ~~of the total required payment~~Bank.

OnContractual ~~April 2,~~cash ~~2009, we entered into a lease agreement to rent approximately 75,000 square feet of~~obligations office space in Plymouth, Minnesota, for our corporate and U.S. peripheral vascular business headquarters, for an initial term of 80 months which began on November 1, 2009. Subject to certain conditions, we may extend the term of the lease for up to two additional terms of five years at the then market rate for rent. Pursuant to the lease agreement, the monthly rental payment will be approximately $95,000, subject to annual increases. In addition to base rent, we will pay a certain percentage of the annual real estate taxes and operating expenses of the building.

~~Financing~~Our ~~history.~~contractual ~~Although~~cash weobligations ~~recognized~~as ~~net income during the second and third fiscal quarters~~ of ~~2009~~December 31, ~~prior~~2009 toare ~~such~~set ~~time,~~forth wein ~~generated~~our ~~significant~~annual ~~operating~~report ~~losses~~on ~~including cumulative~~Form ~~non~~10-~~cash~~K ~~charges of $199.4 million~~ for ~~acquired~~the ~~in-process~~year ~~research~~ended ~~and development that have resulted in an accumulated deficit of $1.1~~December ~~billion as of October 4~~31, 2009. ~~Historically,~~There ~~our liquidity needs~~ have been ~~met~~no ~~through~~material ~~public~~changes ~~and~~in ~~private offerings,~~ our ~~bank financing with Silicon~~contractual ~~Valley~~obligations ~~Bank,~~since ~~our acquisition of FoxHollow~~December 31, ~~and more recently, from cash generated from operations~~2009.

~~Credit~~Other ~~facility.~~liquidity Our operating subsidiaries, ev3 Endovascular, Inc., ev3 International, Inc., Micro Therapeutics, Inc. and FoxHollow Technologies, Inc., which we collectively refer to as the “borrowers,” are parties to a loan and security agreement, with Silicon Valley Bank, which was amended most recently in December 2008. The amended facility consists of a $50.0 million revolving line of credit and a $10.0 million term loan. The revolving line of credit expires on June 25, 2010 and the term loan matures on June 23, 2012. As of October 4, 2009, we had $7.1 million outstanding under the term loan and no outstanding borrowings under the revolving line of credit; however, we had $1.1 million of outstanding letters of credit issued by Silicon Valley Bank, which reduced the maximum amount available under our revolving line of credit to $48.9 million. We refer you to the information ~~contained in Note 11 to our consolidated~~ ~~financial statements for further discussion of our existing financing arrangements.~~

~~Other liquidity information.~~ We refer you to the information contained in Note 1613 to our consolidated financial statements ~~and our annual report on Form 10-K~~ for ~~our fiscal year ended~~ ~~December 31, 2008 for~~ further discussion of earn-out contingencies and pending and threatened litigation related thereto as a result of one of our previous acquisitions and a previous acquisition by FoxHollow.

Our future liquidity and capital requirements will be influenced by numerous factors, including any future operating losses, the level and timing of future sales and expenditures, the results and scope of ongoing research and product development programs, working capital to support our sales growth, receipt of and time required to obtain regulatory clearances and approvals, sales and marketing programs, acceptance of our products in the marketplace, competing technologies, market and regulatory developments, acquisitions and the future course of pending and threatened litigation. We believe that our cash and cash equivalents, ~~and~~anticipated funds from operations and current and anticipated financing arrangements will be sufficient to meet our liquidity requirements through at least the next 12 months. However, there is no assurance that additional funding will not be needed or sought prior to such time. In the event that we require additional working capital to fund future operations and any future acquisitions, we may sell shares of our common stock or other equity securities, sell debt securities, or enter into additional credit and financing arrangements with one or more independent institutional lenders. There is no assurance that any financing transaction will be available on terms acceptable to us, or at all, or that any financing transaction will not be dilutive to our current stockholders.

29Credit risk

At April 4, 2010, our accounts receivable balance was $87.5 million, compared to $90.7 million at December 31, 2009. We monitor the creditworthiness of our customers to which we grant credit terms in the normal course of business. We believe that concentrations of credit risk with respect to our accounts receivable are limited due to the large number of customers and their dispersion across many geographic areas. However, a significant amount of our accounts receivable are with national healthcare systems in many countries. Although we do not currently foresee a credit risk associated with these receivables, repayment depends upon the financial stability of the economies of those countries. As of April 4, 2010, no customer represented more than 10% of our outstanding accounts receivable. From time to time, we offer certain distributors in foreign markets who meet our credit standards extended payment terms, which may result in a longer collection period and reduce our cash flow from operations. We have not experienced significant losses with respect to the collection of accounts receivable from groups of customers or any particular geographic area nor experienced any material cash flow reductions as a result of offering extended payment terms.

not be dilutive to our current stockholders. If we require additional working capital, but are not able to raise additional funds, we may be required to significantly curtail or cease ongoing operations.

Credit risk. At October 4, 2009, our accounts receivable balance was $79.3 million, compared to $72.8 million at December 31, 2008. We monitor the creditworthiness of our customers to which we grant credit terms in the normal course of business. We believe that concentrations of credit risk with respect to our accounts receivable are limited due to the large number of customers and their dispersion across many geographic areas. However, a significant amount of our accounts receivable are with national healthcare systems in many countries. Although we do not currently foresee a credit risk associated with these receivables, repayment depends upon the financial stability of the economies of those countries. As of October 4, 2009, no customer represented more than 10% of our outstanding accounts receivable. From time to time, we offer certain distributors in foreign markets who meet our credit standards extended payment terms, which may result in a longer collection period and reduce our cash flow from operations. We have not experienced significant losses with respect to the collection of accounts receivable from groups of customers or any particular geographic area nor experienced any material cash flow reductions as a result of offering extended payment terms.

Related Party Transactions

We refer you to the information contained in Note 1815 to our consolidated financial statements.

Critical Accounting Policies and Estimates

~~Except~~There ~~for the additional policies noted below, there~~ have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our annual report on Form 10-K for the year ended December 31, ~~2008~~ 2009.

Contingent Consideration

Forward Foreign Currency Contracts

We use forward foreign currency contracts to hedge the volatility of foreign currency rates for foreign cash balances and accounts receivable for which payment is settled in a currency other than our local operations’ functional currency. We did not have any forward foreign currency contracts outstanding at the end of the third quarter of 2009 or at the end of fiscal year 2008. During the three and nine months ended October 4, 2009, we recorded $1.5 million and $3.1 million of losses, respectively, as “Other (income) expense, net” in our consolidated statements of operations associated with the settlement of our foreign currency contracts.

Seasonality and Quarterly Fluctuations

Our business is seasonal in nature. Historically, demand for our products has been the highest in our fourth ~~fiscal~~ quarter. We traditionally experience lower sales volumes in our third ~~fiscal~~ quarter than throughout the rest of the year as a result of the European holiday schedule during the summer months.

We have experienced and expect to continue to experience meaningful variability in our net sales and gross profit among quarters, as well as within each quarter, as a result of a number of factors, including, among other things, the number and mix of products sold in the quarter; the demand for, and pricing of, our products and the products of our competitors; the timing of or failure to obtain regulatory approvals for products; costs, benefits and timing of new product introductions; increased competition; 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 availability and cost of components and materials; number of selling days; fluctuations in foreign currency exchange rates; and restructuring, impairment and other special charges. In addition, as a result of our ~~recent~~2009 acquisition of Chestnut, the potential $75.0 million milestone payment in connection with ~~such~~this acquisition ~~will~~is ~~be included as a component of consideration transferred at the acquisition date fair value and will be~~ classified as a liability on in our consolidated balance ~~sheet~~sheets, ~~which~~and ~~will be~~ remeasured at fair value at each reporting date , with changes in fair value recognized as income or expense. Therefore, any change in ~~the~~ fair value impacts our earnings until the contingent consideration is resolved. Assuming that we continue to expect to achieve the regulatory milestone, the accounting impact of the future milestone payment will negatively impact our future quarterly operating results.

impact our earnings in such reporting period thereby resulting in potential variability in our earnings until the contingent consideration is resolved. Assuming that we continue to expect to achieve the regulatory milestone, the accounting impact of the future milestone payment will likely negatively impact our future quarterly operating results.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, as defined by the rules and regulations of the Securities and Exchange Commission, that have or are reasonably likely to have a material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. As a result, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these arrangements.

Recently Issued Accounting Pronouncements

In January 2010, the ~~third~~Financial ~~quarter~~Accounting ofStandards ~~2009,~~Board we(“FASB”) ~~adopted~~issued ~~the~~guidance ~~Financial~~on improving disclosures about fair value measurement, Accounting Standards ~~Board’s~~Update (“~~FASB~~ASU”) 2010-6, which amends Accounting Standards Codification (“ASC”) ~~Topic~~820 ~~105~~to asadd ~~the~~new ~~single~~requirements ~~official~~for ~~source~~disclosures ~~of authoritative,~~about ~~nongovernmental~~transfers ~~generally~~into ~~accepted~~and ~~accounting~~out ~~principles~~of inLevel ~~the~~1 ~~United~~and ~~States.~~2 Onand ~~the~~separate ~~effective date~~disclosures about purchases, ~~all~~sales, ~~then-existing~~issuances, and ~~non-SEC~~settlements ~~accounting~~relating ~~literature~~to ~~and~~Level ~~reporting~~3 ~~standards~~measurements. ~~were~~We ~~superseded~~adopted ~~and deemed~~ASU ~~nonauthoritative~~2010-6 in the first quarter of 2010. The ~~adoption~~implementation of ~~this~~ASU ~~pronouncement~~2010-6 did not have a material impact on our ~~consolidated~~ ~~financial statements; however, the ASC affected the way we reference authoritative guidance in our~~ consolidated financial statements.

In ~~December~~February ~~2007~~2010, the FASB issued ~~additional~~ guidance on ~~business~~subsequent ~~combinations~~events contained in ~~ASC Topic~~ASU ~~805~~2010-09, (“which amends ASC ~~Topic~~855, ~~805”)~~to ~~and~~address ~~additional~~certain ~~guidance~~implementation onissues ~~noncontrolling~~related ~~interests~~to inan ~~consolidated~~entity’s requirement to ~~financial~~perform ~~statements~~and ~~contained~~disclose insubsequent ~~ASC~~event ~~Topic~~procedures. ~~810,~~Although ~~which~~we are ~~effective~~still ~~for~~required ~~fiscal~~to ~~years beginning~~evaluate ~~after~~subsequent ~~December 15,~~events ~~2008.~~through ~~These~~the ~~new~~date ~~standards~~the ~~represent~~financial ~~the~~statements ~~completion~~are ofissued, the ~~FASB’s~~pronouncement ~~first major~~exempts ~~joint~~SEC ~~project~~filers ~~with~~from disclosing the ~~International~~date ~~Accounting~~through ~~Standards~~which ~~Board~~subsequent ~~and~~events ~~are~~have ~~intended~~been toevaluated. ~~improve,~~We ~~simplify~~adopted ~~and~~ASU ~~converge~~2010-09 ~~internationally~~in the ~~accounting~~first ~~for~~quarter ~~business~~of ~~combinations~~2010. ~~and~~The ~~the~~implementation ~~reporting~~ of ~~noncontrolling~~ ~~interests~~ASU ~~(formerly~~2010-09 ~~minority~~did ~~interests)~~not inhave a material impact on our consolidated financial statements.

~~ASC Topic 805 changes the method for applying the acquisition method in a number of significant~~22 respects, including the requirement to expense transaction fees and expected restructuring costs as incurred, rather than including these amounts in the allocated purchase price; the requirement to recognize the fair value of contingent consideration at the acquisition date, rather than the expected amount when the contingency is resolved; the requirement to recognize the fair value of acquired in-process research and development assets at the acquisition date, rather than immediately expensing; and the requirement to recognize a gain in relation to a bargain purchase price, rather than reducing the allocated basis of long-lived assets. We adopted these standards at the beginning of our 2009 fiscal year. The new presentation and disclosure requirements for pre-existing non-controlling interests are retrospectively applied to all prior period financial information presented. See Note 5 for further discussion of the impact the adoption of ASC Topic 805 had on our results of operations and financial conditions as a result of our Chestnut acquisition in the second quarter of 2009.

In May 2009, the FASB issued additional guidance on management’s assessment of subsequent events. This guidance is contained in ASC Topic 855 (“ASC Topic 855”) and clarifies that management must evaluate, as of each reporting period, events or transactions that occur for potential recognition or disclosure in the financial statements and the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date through the date that the financial statements are issued or are available to be issued. ASC Topic 855 requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date. This disclosure alerts all users of financial statements that an entity has not evaluated subsequent events after that date in the set of financial statements being presented. We adopted ASC Topic 855 in the second quarter of 2009. The implementation of ASC Topic 855 did not have a material impact on our consolidated financial statements.

In April 2008, the FASB issued guidance on the determination of the useful life of intangible assets, (“ASC Topic 350-30-35-1”), which amended the factors considered in developing renewal or extension assumptions used to determine the useful life of recognized intangible assets. ASC Topic 350-30-35-1 requires a consistent approach between the useful life of a recognized intangible asset and the period of expected cash flows used to measure the fair value of an asset. The ASC Topic 350-30-35-1 also requires enhanced disclosure when an intangible asset’s expected future cash flows are affected by an entity’s intent and/or ability to renew or extend the arrangement. We adopted ASC Topic 350-30-35-1 as of January 1, 2009. The adoption did not have a significant impact on our consolidated financial statements.

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,” “forecast,” “possible,” “potential,” “project,” “will,” “should,” “expect,” “intend,” “plan,” “predict,” “anticipate,” “estimate,” “approximate,” “outlook” or “continue” or the negative of these words or other words and terms of similar meaning. or the use of future dates. These forward-looking statements may be contained in the notes to our consolidated financial statements and elsewhere in this report, including under the heading “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Forward-looking statements are based on current expectations about future events affecting us and are subject to uncertainties 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:

• The effect of current worldwide economic conditions on our business, operating results and financial condition, including reduced demand for procedures using our products, the volatility and uncertainty in the capital markets and the availability of credit to our distributors, customers and suppliers; • Recent history of operating losses, negative cash flow and failure to achieve our goal of sustained profitability; • Failure of our business strategy, which relies on assumptions about the market for our products; • Failure to obtain and maintain required regulatory approvals for our products in a cost-effective manner or at all or to comply with other applicable laws and regulations, including without limitation the Federal Anti-Kickback Statute and similar healthcare fraud and abuse laws, the Foreign Corrupt Practices Act and regulations prohibiting the promotion of off-label uses and products for which marketing clearance has not been obtained; • Fluctuations in foreign currency exchange rates, especially the effect of a stronger U.S. dollar against the euro, and interest rates; • Lack of market acceptance of new products; • Lack of demand for our ~~atherectomy~~plaque excision products, due in part to ~~increased~~ competition and lack of long-term clinical data regarding their safety and efficacy; • Failure of our customers or patients to obtain third party reimbursement for their purchases of our products; • Dependence upon ~~our~~certain ~~stents and atherectomy~~ products for a significant portion of our product sales; • Dependence upon our relationships with group purchasing organizations, or GPOs, and our ability to renew our existing GPO contracts, several of which are up for renewal during 2010; • Risk of technological obsolescence, failure to develop innovative and successful new products and technologies and delays in product introduction; • Risks associated with clinical trials; • Risks inherent in operating internationally and selling and shipping our products and purchasing our products and components internationally; • Future additional charges associated with the impairment in the value of our goodwill and other intangible assets; ~~• Exposure to assertions of intellectual property claims and failure to protect our intellectual property;~~

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• Exposure to assertions of intellectual property claims and failure to protect our intellectual property; • Disruption in our ability to manufacture our products; • 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; •~~ Risks associated with previous and future acquisitions, including the incurrence of additional debt, contingent liabilities and expenses and obligations to make significant milestone payments not currently reflected in our financial statements and the effect of contingent consideration on our operating results; • 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; • Exposure to adverse side effects from our products and product liability claims; • Failure to obtain additional capital when needed or on acceptable terms; • Fluctuations in quarterly operating results as a result of seasonality and other items, such as the number and mix of products sold in the quarter; competition; regulatory actions; the timing of new product introductions; 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; field inventory levels; changes in average selling prices; the availability and cost of components and materials; the number of selling days; foreign currency exchange rate fluctuations; effect of revenue recognition policies; timing of operating expenses in anticipation of sales; unanticipated expenses; costs related to acquisitions; special charges and fluctuations in investment returns on cash balances; • Reliance on independent sales distributors and sales associates to market and sell our products in certain countries, their reliance on credit to purchase our products and their recent tendency to reduce their inventories of our products in light of the tightened credit markets; • Highly competitive nature of the markets in which we sell our products and the introduction of competing products; • 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 or inability to access funds under our revolving line of credit due to borrowing base limitations; • ~~Changes~~Inability ~~in and failure~~ to ~~retain~~renew or ~~replace~~secure ~~senior~~alternative ~~management~~financing orprior ~~other~~to ~~key employees and~~ the ~~avoidance~~expiration of ~~business~~our ~~disruption~~line ~~and~~of ~~employee~~credit ~~distraction~~with asSilicon weValley ~~continue to execute restructuring activities~~Bank; • Adverse changes in applicable laws or regulations, including in particular the recently enacted healthcare reform legislation and any other future health or tax laws and regulations; • Inability to use net operating losses to reduce tax liability if we become profitable; • Changes in generally accepted accounting principles; • Effects of pending and threatened litigation; • Conflicts of interests due to our ownership structure; or • Ineffectiveness of our internal controls.

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 December 31, ~~2008~~2009 under the heading “Part I —– Item 1A. Risk Factors” on pages 3132 through 5558 of such report ~~and “Part II — Item 1A~~. ~~Risk Factors” contained in our subsequent quarterly reports on Form 10-Q, including this~~ ~~report.~~

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

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~~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. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we do not know whether our expectations will prove correct. Our expectations reflected in our forward-looking statements can be affected by inaccurate assumptions we might make or by known or unknown uncertainties and factors, including those described above. 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 Securities and Exchange Commission.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to various market risks, ~~which~~due ~~are~~to ~~potential losses arising from~~ adverse changes in market rates and prices, such as interest rates and foreign currency exchange rate fluctuations. We may enter into derivative financial instruments to manage these risks, but we do not enter into derivatives or other financial instruments for trading or speculative purposes. We believe we are not exposed to a material market risk with respect to our invested cash and cash equivalents.

Interest Rate Risk

Borrowings under our revolving line of credit with Silicon Valley Bank bear interest at a variable annual rate equal to Silicon Valley Bank’s prime rate plus 0.5%. Borrowings under the term loan bear interest at a variable annual rate equal to Silicon Valley Bank’s prime rate plus 1.0%. We currently do not use interest rate swaps to mitigate the impact of fluctuations in interest rates. As of ~~October~~April 4, ~~2009~~2010, we had no borrowings under our revolving line of credit and had $75.18 million in borrowings under the term loan. Based upon this debt level, a 10% increase in the interest rate on such borrowings would cause us to incur an increase in interest expense of approximately $3529,000 on an annual basis.

At ~~October~~April 4, ~~2009~~2010, our cash and cash equivalents were $80116.58 million. Based on our annualized average interest rate, a 10% decrease in the interest rate on such balances would result in a reduction in interest income of approximately $1012,000 on an annual basis.

Foreign Currency Exchange Rate Risk

Fluctuations in the ~~exchange~~ rate of exchange between the U.S. dollar and foreign currencies in which we transact business could adversely affect our financial results. Approximately 31% and 26% of our net sales were denominated in foreign currencies in ~~both~~ the three ~~and nine~~ months ended ~~October~~April 4, 2010 and April 5, 2009, respectively. Selling, marketing and administrative costs related to these sales are ~~largely~~ largely denominated in the same respective currency, thereby limiting our transaction risk exposure. ~~However,~~ for sales not denominated in U.S. dollars, if there is an increase in the rate at which a foreign currency is exchanged for U.S. dollars, it will require more of the foreign currency to equal a specified amount of U.S. dollars than before the rate increase. In such cases and when we price our products in the foreign currency, we will receive less in U.S. dollars than we did before the rate increase went into effect. If we price our products in U.S. dollars and competitors price their products in local currency, an increase in the relative strength of the U.S. dollar could result in our price not being competitive in a market where business is transacted in the local currency.

Our principal foreign currency exchange rate risks exist between the U.S. dollar and the euro. Approximately 73% and 7677% of our net sales denominated in foreign currencies in the three ~~and nine~~ months ended ~~October~~April 4, 2010 and April 5, 2009, respectively, were derived from European Union countries and ~~were~~ were denominated in the euro. ~~Our principal foreign currency exchange rate risks exist between the U.S. dollar and the euro.~~ Fluctuations ~~from~~during ~~the beginning to the end of~~ any given reporting period result in the remeasurement of our foreign currency-denominated cash, receivables and payables, ~~generating~~ generating currency transaction gains or losses ~~that impact our non-operating income/expense levels in the respective period~~ and are reported in other expense (income) ~~expense~~, net in our ~~consolidated~~ consolidated financial statements. ~~During~~We ~~the~~recorded ~~third fiscal quarter of 2009, we entered into~~ a ~~forward exchange contract to partially hedge our exposure to~~ foreign currency ~~exchange rate fluctuations associated with our euro-denominated accounts receivable. Net of hedging activities, we recorded a foreign currency~~ transaction ~~gain~~loss of $~~143~~354,000 and a ~~foreign~~gain ~~currency transaction loss~~ of $12.42 million in the three ~~and nine~~ months ended ~~October~~April 4, 2010 and April 5, 2009, respectively, ~~compared to foreign currency~~net ~~transaction~~of ~~losses~~activities offrom ~~$2.3 million~~forward ~~and~~exchange ~~$192,000~~contracts induring the ~~three~~most ~~and~~recent ~~nine months ended September 28~~period, ~~2008,~~ ~~respectively,~~ primarily related to the translation of our foreign currency-denominated net receivables into U.S. dollars. Our ~~third fiscal~~ first quarter ~~2009~~of 2010 forward ~~contract~~contracts ~~was~~were settled prior to the end of ~~the~~our first quarter of 2010 for a gain of $2.3 million and there were no outstanding forward exchange contracts as of ~~October~~April 4, ~~2009.~~ 2010. We ~~will~~did ~~continue~~not toenter ~~assess~~into ~~the~~any ~~use~~forward ofexchange ~~hedging~~ contracts in the ~~future~~first ~~and~~quarter of 2009. We entered into ~~three~~ ~~hedges~~three forward exchange contracts at the beginning of the ~~fourth~~second quarter of ~~2009~~2010 to economically hedge our ~~balance sheet~~ risk of the euro, British pound and Canadian dollar and will continue to assess the use of forward contracts in the future. At ~~October~~April 4, ~~2009~~2010, we had euro-denominated accounts receivable and cash of €2225.06 million and €~~962~~598,000, respectively. A 10% increase in the foreign exchange rate between the U.S. dollar and the euro as a result of athe weakening dollar would have the effect of ~~approximately~~an aapproximate $3.45 million foreign currency transaction gain. A 10% decrease in the foreign currency exchange rate between the U.S. dollar and the euro as a result of athe strengthening dollar would have the effect of ~~approximately~~an aapproximate $3.45 million foreign currency transaction loss.

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ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) that are designed to ~~reasonably~~provide ~~ensure~~reasonable ~~that~~assurance that information required to be disclosed by us in the reports we file or submit under the ~~Securities~~ Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our principal ~~executive~~ executive officer and principal financial ~~officers~~officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated can provide only reasonable assurance of achieving the desired control objectives.

Our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered in this quarterly report on Form 10-Q. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of such period to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, ~~summarized,~~ summarized and reported within the time periods specified in the SEC’s rules and forms, and that ~~material~~ such information ~~relating~~is toaccumulated ~~our~~and ~~company~~communicated ~~and~~to our ~~consolidated subsidiaries is made known to~~ management, including our Chief Executive Officer and Chief Financial Officer, ~~particularly~~as ~~during the~~appropriate ~~period~~to ~~when~~allow ~~our~~timely ~~periodic~~decisions ~~reports~~regarding ~~are being prepared~~required disclosure.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting that occurred during our ~~fiscal~~ first quarter ended ~~October~~April 4, ~~2009~~2010 that has materially affected, or is reasonably likely to ~~materially~~ materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

A description of our legal proceedings in Note 1613 of our consolidated financial statements included within this report is incorporated herein by reference.

ITEM 1A. RISK FACTORS

We are affected by risks specific to us as well as factors that affect all businesses operating in a global market. In addition to the other information set forth in this report, careful consideration should be taken of the factors described in our annual report on Form 10-K for the fiscal year ended December 31, ~~2008~~2009 under the heading “Part I —– Item 1A. Risk Factors,” ~~and the~~which ~~additional~~could ~~and~~materially ~~revised~~adversely ~~risk~~affect ~~factors described in~~ our ~~quarterly report on Form 10-Q for the fiscal quarter ended July 5~~business, ~~2009~~financial ~~under~~condition ~~the~~or ~~heading~~operating ~~“Part II — Item 1A~~results. ~~Risk~~There has ~~Factors”~~been ~~and~~no ~~below,~~material ~~any~~change ~~or all~~in ofthose ~~which~~risk ~~could~~factors ~~materially~~other ~~adversely~~than ~~affect~~the ~~our~~risk ~~business,~~factor ~~financial condition or operating results~~below.

Our business, financial condition, results of operations and cash flows could be significantly and adversely affected ifby ~~certain~~the ~~types~~recently ofadopted ~~healthcare~~legislation ~~reform~~reforming ~~programs~~the ~~are~~United ~~adopted~~States ~~in our key markets~~healthcare system and if other administration and legislative proposals are enacted into law.

~~Recently~~In March 2010, ~~President Obama and members of Congress have proposed significant reforms to~~ the U.S. ~~healthcare~~ ~~system.~~Congress ~~Both~~adopted ~~the U.S. Senate~~ and ~~House~~President ofObama ~~Representatives~~signed ~~have~~into ~~conducted~~law ~~hearings~~comprehensive ~~about~~health ~~healthcare~~care reform. ~~The~~legislation ~~Obama~~through ~~administration’s~~the ~~fiscal~~passage ~~year~~of ~~2010~~the ~~budget~~Patient ~~included~~Protection ~~proposals to limit Medicare payments, reduce drug spending~~ and ~~increase~~Affordable ~~taxes.~~Health ~~In addition, members of Congress have~~Care ~~proposed~~Act a(H.R. ~~single-payer~~3590) ~~healthcare~~and ~~system,~~the aHealth ~~government~~Care ~~health insurance option to compete with private plans~~ and ~~other~~Education ~~expanded~~Reconciliation ~~public~~Act ~~healthcare~~(H.R. ~~measures~~4872). ~~Most~~Among ~~recently, in September 2009, Max~~other ~~Baucus~~initiatives, ~~the~~these ~~Chairman~~bills ofimpose ~~the~~a U2.S.3% ~~Senate Finance Committee released a draft of the committee’s healthcare reform bill, a bill which included an~~ excise tax on ~~all~~domestic ~~medical~~sales ~~devices,~~of ~~requiring the~~ medical ~~device~~devices ~~industry to contribute $4~~following December ~~billion~~31, ~~to healthcare reform each year for a period of 10 years~~2012. Various healthcare reform proposals also have emerged at the state level. We cannot predict what healthcare initiatives, if any, will be implemented at the ~~federal or~~ state level, or the exact effect newly enacted laws or any future legislation or regulation will have on us. However, an expansion in government’s role in the U.S. healthcare industry may lower reimbursements for our products, reduce medical procedure volumes and adversely affect our business and results of operations, possibly materially. In addition, if the enacted excise tax ~~contained~~on inmedical ~~the~~devices ~~proposed legislation from the U.S. Senate Finance~~could ~~Committee~~materially isand ~~enacted~~adversely ~~into~~affect ~~law,~~ our operating results ~~could be materially and adversely affected~~.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Recent Sales of Unregistered Equity Securities

During the ~~third~~first ~~fiscal~~ quarter ended ~~October~~April 4, ~~2009~~2010, we did not issue any shares of our common stock or other equity securities of our company that were not registered under the Securities Act of 1933, as amended.

Issuer Purchases of Equity Securities

The following table sets forth the information with respect to purchases made by or on behalf of ev3 or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934), of shares of our common stock during the ~~third~~first ~~fiscal~~ quarter ended ~~October~~April 4, ~~2009~~2010.

Total

Total Number of Shares

Maximum Number of

~~Maximum Number of~~

Number of

Average

Purchased as Part of

Shares that May Yet Be

~~Shares that May Yet Be~~

Price Paid

Publicly Announced Plans or

Purchased Under the

~~Purchased Under the~~

Period

Purchased (1)

Per Share

Programs (2)

Plans or Programs (2)

~~Plans or Programs (2)~~

Month # 1

812

10.73

N/A

Month # 1 (January 1, 2010 – February 7, 2010)

177

14.39

N/A

(July 6, 2009 — August 9, 2009)

Month # 2 (February 8, 2010 – March 7, 2010)

—

N/A

Month # 2

—

N/A

Month # 3 (March 8, 2010 – April 4, 2010)

—

N/A

(August 10, 2009 — September 6, 2009)

Total:

177

14.39

N/A

Month # 3

—

N/A

September 7, 2009 — October 4, 2009)

Total:

812

10.73

N/A

(1)		Consists of shares repurchased from employees in connection with the required minimum 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 minimum withholding or employment-related tax obligations.

Except as set forth in the table above, we did not purchase any shares of our common stock or ~~other~~ other equity securities of ours registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, during the ~~third~~first ~~fiscal~~ quarter ended ~~October~~April 4, ~~2009~~2010.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. [REMOVED ~~SUBMISSION~~AND ~~OF MATTERS TO A VOTE OF SECURITY HOLDERS~~RESERVED]

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

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ITEM 6. EXHIBITS

The following exhibits are being filed or furnished with this quarterly report on Form 10-Q:

Exhibit No.		Description	~~Description~~
10.1	~~10.1~~	Letter Agreement Regarding Foreign Assignment dated January 20, 2010 between ev3 Inc. and Brett Wall (Incorporated by reference to Exhibit 10.21 to ev3’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009 (File No. 000-51348))	~~Employment Agreement dated June 11, 2003 between ev3 Europe SAS and Pascal E.R. Girin, as amended on September 17, 2009 (Filed herewith)~~
31.1	~~31.1~~	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and SEC Rule 13a-14(a) (Filed herewith)	~~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	~~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)	~~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	~~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)	~~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	~~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)	~~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)~~

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, ~~hereunto~~thereunto duly authorized.

November 3, 2009	ev3 Inc.
May 7, 2010	ev3 Inc.
	By:	/s/ Robert J. Palmisano
		Robert J. Palmisano
		President and Chief Executive Officer (principal executive officer)
	By:	/s/ Shawn McCormick
		Shawn McCormick
		Senior Vice President and Chief Financial Officer (principal financial and accounting officer)

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ev3 Inc. QUARTERLY REPORT ON FORM 10-Q EXHIBIT INDEX

EXHIBIT INDEX



Exhibit No.	Description	Method of Filing
10.1	Letter Agreement Regarding Foreign Assignment dated January 20, 2010 between ev3 Inc. and Brett Wall	Incorporated by reference to Exhibit 10.21 to ev3’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009 (File No. 000-51348)
31.1	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

Exhibit No.	Description	Method of Filing
10.1	Employment Agreement dated June 11, 2003 between ev3 Europe SAS and Pascal E.R. Girin, as amended on September 17, 2009	Filed herewith
31.1	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

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Filing Compare · ev3 Inc.