ev3 Inc. (EVVV) filed Quarterly Report for the period ended 2009-10-04.
ev3 Inc. is a global medical device company focused on endovascular technologies for the minimally invasive treatment of vascular diseases and disorders. Ev3 Inc. has a market cap of $1.32 billion; its shares were traded at around $11.78 with a P/E ratio of 45.3 and P/S ratio of 3.1.
Highlight of Business Operations:
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 4, 2009, we had no borrowings under our revolving line of credit and had $7.1 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 $35,000 on an annual basis.
At October 4, 2009, our cash and cash equivalents were $80.5 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 $10,000 on an annual basis.
Approximately 73% and 76% of our net sales denominated in foreign currencies in the three and nine months ended October 4, 2009, respectively, were derived from European Union countries and were denominated in the euro. Our principal foreign currency exchange rate risks exist between the U.S. dollar and the euro. Fluctuations from the beginning to the end of any given reporting period result in the remeasurement of our foreign currency-denominated cash, receivables and payables, generating currency transaction gains or losses that impact our non-operating income/expense levels in the respective period and are reported in other (income) expense, net in our consolidated financial statements. During the 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 of $143,000 and a foreign currency transaction loss of $1.4 million in the three and nine months ended October 4, 2009, respectively, compared to foreign currency transaction losses of $2.3 million and $192,000 in the three and nine months ended September 28, 2008, respectively, primarily related to the translation of our foreign currency-denominated net receivables into U.S. dollars. Our third fiscal quarter 2009 forward contract was settled prior to the end of the quarter and there were no outstanding forward exchange contracts as of October 4, 2009. We will continue to assess the use of hedging contracts in the future and entered into three hedges at the beginning of the fourth quarter of 2009 to hedge our balance sheet risk of the euro, British pound and Canadian dollar. At October 4, 2009, we had euro-denominated accounts receivable and cash of €22.0 million and €962,000, respectively. A 10% increase in the foreign exchange rate between the U.S. dollar and the euro as a result of a weakening dollar would have the effect of approximately a $3.4 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 a strengthening dollar would have the effect of approximately a $3.4 million foreign currency transaction loss.
EVVV is in the portfolios of PRIMECAP Management.
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