##### Table of Contents



U.S. SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
  þ
    
    Quarterly report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
 For the quarterly period ended July 4, 2009
 or
 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: 000-49798
 THORATEC CORPORATION
 (Exact name of registrant as specified in its charter)
 California
    
    94-2340464(State or other jurisdiction of incorporation
    
    (I.R.S. Employer Identification No.)or organization)6035 Stoneridge Drive, Pleasanton, California
    
    94588(Address of principal executive offices)
    
    (Zip Code)
 (925) 847-8600
(Registrants telephone number, including area code)
 Indicate by check mark whether the registrant: þ o
 o o
  Large accelerated filer þ
Accelerated filer o
Non-accelerated filer o(Do not check if a smaller reporting company)
Smaller reporting company o o þ




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##### 



THORATEC CORPORATION
 TABLE OF CONTENTS
 Part I. Financial Information
    
    
    3Item 1. Condensed Consolidated Financial Statements (unaudited)
    
    
    3Condensed Consolidated Balance Sheets as of July 4, 2009 and January 3, 2009
    
    
    3Condensed Consolidated Statements of Operations for the Three and Six Months Ended July 4, 2009 and June 28, 2008
    
    
    4Condensed Consolidated Statements of Shareholders Equity for the Six Months Ended July 4, 2009 and June 28,2008
    
    
    5Condensed Consolidated Statements of Cash Flows for the Six Months Ended July 4, 2009 and June 28, 2008
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    26Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    40Item 4. Controls and Procedures
    
    
    40Part II. Other Information
    
    
    42Item 1A. Risk Factors
    
    
    42Item 2. Unregistered Sale of Equity Securities and Use of Proceeds
    
    
    42Item 4. Submission of Matters to a Vote of Security Holders
    
    
    43Item 6. Exhibits
    
    
    44Signatures
    
    
    45ExhibitsEX-31.1EX-31.2EX-32.1EX-32.2
     2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 THORATEC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
 (unaudited)
(in thousands)
 July 4, 2009
    
    
    January 3, 2009As adjusted (1)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    81,474
    
    
    $
    107,053Restricted cash and cash equivalents
    
    
    20,036
    
    
    
    Short-term available-for-sale investments
    
    
    169,038
    
    
    
    141,598Receivables, net of allowances of $1,321 and $947, respectively
    
    
    56,195
    
    
    
    55,065Inventories
    
    
    66,418
    
    
    
    61,373Deferred tax assets
    
    
    8,397
    
    
    
    8,397Prepaid expenses and other assets
    
    
    7,690
    
    
    
    7,415Total current assets
    
    
    409,248
    
    
    
    380,901Property, plant and equipment, net
    
    
    52,220
    
    
    
    50,138Goodwill
    
    
    99,287
    
    
    
    99,287Purchased intangible assets, net
    
    
    103,085
    
    
    
    108,584Long-term available-for-sale investments
    
    
    24,682
    
    
    
    29,959Other long-term assets
    
    
    15,039
    
    
    
    15,216Total Assets
    
    $
    703,561
    
    
    $
    684,085LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    15,538
    
    
    $
    10,563Accrued compensation
    
    
    14,802
    
    
    
    25,550Other accrued liabilities
    
    
    14,511
    
    
    
    12,410Total current liabilities
    
    
    44,851
    
    
    
    48,523Senior subordinated convertible notes
    
    
    127,936
    
    
    
    124,115Long-term deferred tax liability
    
    
    35,425
    
    
    
    38,842Other
    
    
    7,378
    
    
    
    6,326Total Liabilities
    
    
    215,590
    
    
    
    217,806Shareholders equity:Common shares: no par, authorized 100,000; issued and outstanding 56,551 and 56,395
as of July 4, 2009 and January 3, 2009, respectively
    
    
    
    
    
    
    Additional paid-in capital
    
    
    541,326
    
    
    
    528,657Accumulated deficit
    
    
    (51,184
    )
    
    
    (56,634
    )Accumulated other comprehensive loss:Unrealized loss on investments
    
    
    (1,040
    )
    
    
    (3,337
    )Cumulative translation adjustments
    
    
    (1,131
    )
    
    
    (2,407
    )Total accumulated other comprehensive loss
    
    
    (2,171
    )
    
    
    (5,744
    )Total Shareholders Equity
    
    
    487,971
    
    
    
    466,279Total Liabilities and Shareholders Equity
    
    $
    703,561
    
    
    $
    684,085
 
 (1)
    
    Adjusted for the retrospective adoption of Financial Accounting Standards Board (FASB)
Staff Position (FSP). Accounting Principles Bulletin (APB) 14-1, Accounting for
Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial
Cash Settlement).See Note 12, Long-Term Debt.  3




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THORATEC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (unaudited)
(in thousands, except per share data)
 Three Months Ended
    
    
    Six Months EndedJuly 4,
    
    
    June 28,
    
    
    July 4,
    
    
    June 28,2009
    
    
    2008
    
    
    2009
    
    
    2008As adjusted(1)
    
    
    
    
    
    
    As adjusted(1)Product sales
    
    $
    92,059
    
    
    $
    82,648
    
    
    $
    181,525
    
    
    $
    147,075Cost of product sales
    
    
    41,304
    
    
    
    31,825
    
    
    
    76,743
    
    
    
    60,415Gross profit
    
    
    50,755
    
    
    
    50,823
    
    
    
    104,782
    
    
    
    86,660Operating expenses:Selling, general and administrative
    
    
    30,776
    
    
    
    23,857
    
    
    
    58,231
    
    
    
    44,493Research and development
    
    
    13,426
    
    
    
    12,839
    
    
    
    27,512
    
    
    
    25,358Amortization of purchased intangible assets
    
    
    2,568
    
    
    
    3,296
    
    
    
    5,499
    
    
    
    6,592Total operating expenses
    
    
    46,770
    
    
    
    39,992
    
    
    
    91,242
    
    
    
    76,443Income from operations
    
    
    3,985
    
    
    
    10,831
    
    
    
    13,540
    
    
    
    10,217Other income and (expense):Interest expense and other
    
    
    (3,040
    )
    
    
    (2,828
    )
    
    
    (5,906
    )
    
    
    (5,415
    )Interest income and other
    
    
    1,637
    
    
    
    2,281
    
    
    
    2,625
    
    
    
    4,459Income before income taxes
    
    
    2,582
    
    
    
    10,284
    
    
    
    10,259
    
    
    
    9,261Income tax expense
    
    
    (750
    )
    
    
    (2,660
    )
    
    
    (2,800
    )
    
    
    (2,315
    )Net income
    
    $
    1,832
    
    
    $
    7,624
    
    
    $
    7,459
    
    
    $
    6,946Net income per share:Basic and diluted
    
    $
    0.03
    
    
    $
    0.14
    
    
    $
    0.13
    
    
    $
    0.13Shares used to compute net income per share:Basic
    
    
    56,468
    
    
    
    54,556
    
    
    
    56,426
    
    
    
    54,389Diluted
    
    
    57,840
    
    
    
    55,334
    
    
    
    57,782
    
    
    
    55,105
 
 (1)
    
    Adjusted for the retrospective adoption of FSP APB 14-1. See Note 12, Long-Term Debt.  4




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THORATEC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(unaudited)
(in thousands)
 AccumulatedOther
    
    
    Total
    
    
    TotalCommon
    
    
    Additional
    
    
    Accumulated
    
    
    Comprehensive
    
    
    Shareholders
    
    
    ComprehensiveShares
    
    
    Paid-in Capital
    
    
    Deficit
    
    
    Income (Loss)
    
    
    Equity
    
    
    Income (loss)BALANCE, DECEMBER 29, 2007, as
previously reported
    
    
    54,108
    
    
    $
    458,383
    
    
    $
    (61,577
    )
    
    $
    1,223
    
    
    $
    398,029Retrospective application of FSP APB
14-1, net of taxes
    
    
    
    
    
    
    28,462
    
    
    
    (12,682
    )
    
    
    
    
    
    
    15,780BALANCE, DECEMBER 29, 2007, as adjusted
(1)
    
    
    54,108
    
    
    
    486,845
    
    
    
    (74,259
    )
    
    
    1,223
    
    
    
    413,809Exercise of common stock options for cash
    
    
    78
    
    
    
    871
    
    
    
    
    
    
    
    
    
    
    
    871Issuance of common shares under Employee
Stock Purchase Plan
    
    
    77
    
    
    
    1,050
    
    
    
    
    
    
    
    
    
    
    
    1,050Excess income tax deficiency on stock
option exercises
    
    
    
    
    
    
    (111
    )
    
    
    
    
    
    
    
    
    
    
    (111
    )Repurchase of common shares, net
    
    
    370
    
    
    
    (598
    )
    
    
    (494
    )
    
    
    
    
    
    
    (1,092
    )Share-based compensation
    
    
    
    
    
    
    5,305
    
    
    
    
    
    
    
    
    
    
    
    5,305Comprehensive income (loss):Unrealized loss on available-for-sale
investments (net of taxes of $2,104)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,155
    )
    
    
    (3,155
    )
    
    $
    (3,155
    )Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26
    )
    
    
    (26
    )
    
    
    (26
    )Net income (1)
    
    
    
    
    
    
    
    
    
    
    6,946
    
    
    
    
    
    
    
    6,946
    
    
    
    6,946Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3,765BALANCE, JUNE 28, 2008 (1)
    
    
    54,633
    
    
    $
    493,362
    
    
    $
    (67,807
    )
    
    $
    (1,958
    )
    
    $
    423,597BALANCE, JANUARY 3, 2009, as previously
reported
    
    
    56,395
    
    
    $
    500,195
    
    
    $
    (39,751
    )
    
    $
    (5,744
    )
    
    $
    454,700Retrospective application of FSP APB
14-1, net of taxes
    
    
    
    
    
    
    28,462
    
    
    
    (16,883
    )
    
    
    
    
    
    
    11,579BALANCE, JANUARY 3, 2009, as adjusted (1)
    
    
    56,395
    
    
    
    528,657
    
    
    
    (56,634
    )
    
    
    (5,744
    )
    
    
    466,279Exercise of common stock options for cash
    
    
    203
    
    
    
    2,925
    
    
    
    
    
    
    
    
    
    
    
    2,925Issuance of common shares under Employee
Stock Purchase Plan
    
    
    76
    
    
    
    1,628
    
    
    
    
    
    
    
    
    
    
    
    1,628Tax deduction related to employees and
directors stock plans
    
    
    
    
    
    
    1,832
    
    
    
    
    
    
    
    
    
    
    
    1,832Repurchase and retirement of common
shares, net
    
    
    (123
    )
    
    
    (1,091
    )
    
    
    (2,009
    )
    
    
    
    
    
    
    (3,100
    )Share-based compensation
    
    
    
    
    
    
    7,375
    
    
    
    
    
    
    
    
    
    
    
    7,375Comprehensive income (loss):Unrealized gain on available-for-sale
investments (net of taxes of $1,531)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,297
    
    
    
    2,297
    
    
    $
    2,297Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,276
    
    
    
    1,276
    
    
    
    1,276Net income
    
    
    
    
    
    
    
    
    
    
    7,459
    
    
    
    
    
    
    
    7,459
    
    
    
    7,459Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    11,032BALANCE, JULY 4, 2009
    
    
    56,551
    
    
    $
    541,326
    
    
    $
    (51,184
    )
    
    $
    (2,171
    )
    
    $
    487,971
 
 (1)
    
    Adjusted for the retrospective adoption of FSP APB 14-1. See Note 12, Long-Term Debt.  5




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THORATEC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (unaudited)
(in thousands)
 Six Months EndedJuly 4,
    
    
    June 28,2009
    
    
    2008As adjusted (1)Cash flows from operating activities:Net income
    
    $
    7,459
    
    
    $
    6,946Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    10,944
    
    
    
    11,565Investment premium amortization, net
    
    
    1,329
    
    
    
    634Non-cash expenses, net
    
    
    547
    
    
    
    60Non-cash interest on convertible subordinated debt
    
    
    3,820
    
    
    
    3,500Tax benefit related to stock options
    
    
    1,832
    
    
    
    Share-based compensation expense
    
    
    7,365
    
    
    
    5,493Excess tax benefits from share-based compensation
    
    
    (1,594
    )
    
    
    (68
    )Loss on disposal of assets
    
    
    104
    
    
    
    384Change in net deferred tax liability
    
    
    (4,504
    )
    
    
    (3,753
    )Changes in assets and liabilities:Receivables
    
    
    (556
    )
    
    
    (11,028
    )Inventories
    
    
    (5,752
    )
    
    
    (2,950
    )Prepaid expenses and other assets
    
    
    (512
    )
    
    
    (793
    )Accounts payable and other liabilities
    
    
    (4,260
    )
    
    
    4,933Accrued income taxes, net
    
    
    854
    
    
    
    3,045Net cash provided by operating activities
    
    
    17,076
    
    
    
    17,968Cash flows from investing activities:Purchases of available-for-sale investments
    
    
    (90,237
    )
    
    
    (98,548
    )Sales of available-for-sale investments
    
    
    25,808
    
    
    
    78,670Maturities of available-for-sale investments
    
    
    44,773
    
    
    
    44,765Restricted cash and equivalents
    
    
    (20,000
    )
    
    
    Purchases of property, plant and equipment
    
    
    (5,955
    )
    
    
    (3,251
    )Net cash (used in) provided by investing activities
    
    
    (45,611
    )
    
    
    21,636Cash flows from financing activities:Excess income tax deficiency on stock option exercises
    
    
    
    
    
    
    (111
    )Excess tax benefits from share-based compensation
    
    
    1,594
    
    
    
    68Proceeds from stock option exercises
    
    
    2,925
    
    
    
    871Proceeds from stock issued under employee stock purchase plan
    
    
    1,628
    
    
    
    1,050Repurchase and retirement of common shares
    
    
    (3,100
    )
    
    
    (1,092
    )Net cash provided by financing activities
    
    
    3,047
    
    
    
    786Effect of exchange rate changes on cash and cash equivalents
    
    
    (91
    )
    
    
    27Net (decrease) increase in cash and cash equivalents
    
    
    (25,579
    )
    
    
    40,417Cash and cash equivalents at beginning of period
    
    
    107,053
    
    
    
    20,689Cash and cash equivalents at end of period
    
    $
    81,474
    
    
    $
    61,106Supplemental disclosure of cash flow information:Cash paid for taxes
    
    $
    4,852
    
    
    $
    3,507Cash paid for interest
    
    $
    1,707
    
    
    $
    1,707Supplemental disclosure of non-cash investing and financing activities:Transfers of equipment from inventory
    
    $
    1,120
    
    
    $
    1,685
 
 (1)
    
    Adjusted for the retrospective adoption of FSP APB 14-1. See Note 12, Long-Term Debt.  6




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THORATEC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)
 1. Operations and Significant Accounting Policies
 Basis of Presentation
   Subsequent Events
 Revenue Recognition and Product Warranty
 Revenue Recognition When Right of Return Exists
  7




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Balance at
    
    Accruals for
    
    
    
    
    
    Balance atBeginning of Period
    
    Warranties Issued
    
    Settlements Made
    
    End of Period(in thousands)Six months ended July 4, 2009
    
    $
    1,071
    
    
    $
    2,305
    
    
    $
    (1,614
    )
    
    $
    1,762Six months ended June 28, 2008
    
    $
    1,006
    
    
    $
    888
    
    
    $
    (527
    )
    
    $
    1,367
 2. Recently Issued Accounting Standards
 The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles  a replacement of FASB
Statement No. 162
  Recognition and Presentation
of Other-Than-Temporary Impairments
 Determining Fair Value When the Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly,
 Interim Disclosures about Fair
Value of Financial Instruments
 8




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Disclosures about Derivative Instruments and
Hedging Activities
 Effective Date of FASB Statement No. 157 Fair Value Measurements
 Business Combinations Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That
Arises from Contingencies
 3. Cash and Cash Equivalents
  4. Restricted Cash and Cash Equivalents
  Loan
Amount
  9




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5. Investments in Available-for-Sale Securities
     GrossAmortized
    
    
    unrealized
    
    
    Faircost
    
    
    gains (losses)
    
    
    value(in thousands)July 4, 2009:Short-term investments:Municipal bonds, variable demand notes and corporate bonds
    
    $
    167,658
    
    
    $
    1,380
    
    
    $
    169,038Long-term investments:Auction rate securities
    
    $
    27,800
    
    
    $
    (3,118
    )
    
    $
    24,682January 3, 2009:Short-term investments:Municipal bonds
    
    $
    139,931
    
    
    $
    1,667
    
    
    $
    141,598Long-term investments:Auction rate securities
    
    $
    37,200
    
    
    $
    (7,241
    )
    
    $
    29,959
 10




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6. Fair Value Measurements
 Fair Value Measurements,
 11




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Level 1:
    
    Quoted prices (unadjusted) in active markets for identical assets or liabilities.Level 2:
    
    Directly or indirectly observable market based inputs used in models or other valuation methodologies.Level 3:
    
    Unobservable inputs that are not corroborated by market data which require significant management judgment or
estimation.
  July 4, 2009Assets and
    
    
    
    
    
    
    
    
    
    Significantliabilities
    
    
    
    
    
    Quoted prices in
    
    other
    
    Significantat carrying
    
    Total
    
    active markets for
    
    observable
    
    unobservablevalue
    
    fair value
    
    identical assets
    
    inputs
    
    inputs(Level 1)
    
    (Level 2)
    
    (Level 3)(in thousands)AssetsShort-term investments  municipal bonds, variable
demand notes and corporate bonds
    
    $
    169,038
    
    
    $
    169,038
    
    
    $
    
    
    
    $
    169,038
    
    
    $
    Long-term investments  auction rate securities
    
    
    24,682
    
    
    
    24,682
    
    
    
    
    
    
    
    
    
    
    
    24,682Mark to market on foreign exchange instruments (Note 7)
    
    
    44
    
    
    
    44
    
    
    
    
    
    
    
    44
    
    
    
    Convertible debenture with Levitronix LLC
    
    
    5,874
    
    
    
    6,000
    
    
    
    
    
    
    
    
    
    
    
    6,000LiabilitiesMake-whole provision (Note 12)
    
    
    51
    
    
    
    51
    
    
    
    
    
    
    
    
    
    
    
    51Senior subordinated convertible notes (fair value for
purposes of disclosure in Note 12)
    
    
    127,936
    
    
    
    197,942
    
    
    
    
    
    
    
    197,942
    
    
    
    
 January 3, 2009Assets and
    
    
    
    
    
    
    
    
    
    Significantliabilities at
    
    
    
    
    
    Quoted prices in
    
    other
    
    Significantcarrying
    
    Total
    
    active markets for
    
    observable
    
    unobservablevalue
    
    fair value
    
    identical assets
    
    inputs
    
    inputs(Level 1)
    
    (Level 2)
    
    (Level 3)(in thousands)AssetsShort-term investments  municipal bonds
    
    $
    141,598
    
    
    $
    141,598
    
    
    $
    
    
    
    $
    141,598
    
    
    $
    Long-term investments  auction rate securities
    
    
    29,959
    
    
    
    29,959
    
    
    
    
    
    
    
    
    
    
    
    29,959Convertible debenture with Levitronix LLC
    
    
    5,711
    
    
    
    4,200
    
    
    
    
    
    
    
    
    
    
    
    4,200LiabilitiesMark to market on foreign exchange instruments (Note 7)
    
    
    73
    
    
    
    73
    
    
    
    
    
    
    
    73
    
    
    
    Make-whole provision (Note 12)
    
    
    46
    
    
    
    46
    
    
    
    
    
    
    
    
    
    
    
    46Senior subordinated convertible notes (fair value for
purposes of disclosure in Note 12)
    
    
    124,115
    
    
    
    215,880
    
    
    
    
    
    
    
    215,880
    
    
    
    
  12




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##### Table of Contents



Fair Value Measurement Using SignificantUnobservable Inputs (Level 3)AuctionRateSecurities
    
    
    Assets
    
    
    Liabilities(in thousands)Balance at January 3, 2009
    
    $
    29,959
    
    
    $
    4,200
    
    
    $
    46Settlement at par
    
    
    (100
    )
    
    
    
    
    
    
    Unrealized holding loss, included in interest income and other
    
    
    
    
    
    
    
    
    
    
    25Unrealized holding gain, included in other comprehensive income
    
    
    69
    
    
    
    
    
    
    
    Balance at April 4, 2009
    
    $
    29,928
    
    
    $
    4,200
    
    
    $
    71Settlements at par
    
    
    (9,300
    )
    
    
    
    
    
    
    Unrealized holding gain, included in interest income and other
    
    
    
    
    
    
    
    
    
    
    (20
    )Unrealized holding gain, included in other comprehensive income
    
    
    4,054
    
    
    
    
    
    
    
    Unrealized holding gain, for disclosure purposes (Note 11)
    
    
    
    
    
    
    1,800
    
    
    
    Balance at July 4, 2009
    
    $
    24,682
    
    
    $
    6,000
    
    
    $
    51
  7. Foreign Exchange Instruments
  Accounting for Derivative Instrument and Hedging
Activities,
 Notional AmountsJuly 4,
    
    June 28,2009
    
    2008(in thousands)Purchases
    
    $
    8,414
    
    
    $
    9,863Sales
    
    
    11,973
    
    
    
    11,051
  
 13




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##### Table of Contents



Three Months Ended
    
    Six Months EndedJuly 4,
    
    June 28,
    
    July 4,
    
    June 28,2009
    
    2008
    
    2009
    
    2008(in thousands)Foreign currency exchange gain (loss) on foreign currency contracts
    
    $
    487
    
    
    $
    (107
    )
    
    $
    935
    
    
    $
    (1,147
    )Foreign currency exchange (loss) gain on foreign translation adjustments
    
    
    (498
    )
    
    
    122
    
    
    
    (1,448
    )
    
    
    1,230
 8. Inventories
  July 4,
    
    
    January 3,2009
    
    
    2009(in thousands)Finished goods
    
    $
    20,853
    
    
    $
    24,373Work in process
    
    
    11,090
    
    
    
    9,174Raw materials
    
    
    34,475
    
    
    
    27,826Total
    
    $
    66,418
    
    
    $
    61,373
 9. Property, Plant and Equipment, net
  July 4,
    
    
    January 3,2009
    
    
    2009(in thousands)Land, building and improvements
    
    $
    16,135
    
    
    $
    16,135Equipment and capitalized software
    
    
    71,017
    
    
    
    68,029Furniture and leasehold improvements
    
    
    30,224
    
    
    
    27,424Total
    
    
    117,376
    
    
    
    111,588Less accumulated depreciation
    
    
    (65,156
    )
    
    
    (61,450
    )Total
    
    $
    52,220
    
    
    $
    50,138
  10. Goodwill and Purchased Intangible Assets
   July 4, 2009
    
    
    January 3, 2009(in thousands)Balance at the beginning of the fiscal period
    
    $
    99,287
    
    
    $
    98,368Adjustment for the acquisition related to the Cardiovascular division
    
    
    
    
    
    
    919Balance at the end of the fiscal period
    
    $
    99,287
    
    
    $
    99,287
 14




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##### Table of Contents



July 4, 2009Gross
    
    
    
    
    
    
    NetCarrying
    
    
    Accumulated
    
    
    CarryingAmount
    
    
    Amortization
    
    
    Amount(in thousands)Patents and trademarks
    
    $
    38,515
    
    
    $
    (29,570
    )
    
    $
    8,945Core technology
    
    
    37,485
    
    
    
    (14,750
    )
    
    
    22,735Developed technology
    
    
    125,742
    
    
    
    (54,772
    )
    
    
    70,970Customer and distributor relationships and other
    
    
    897
    
    
    
    (462
    )
    
    
    435Total purchased intangible assets
    
    $
    202,639
    
    
    $
    (99,554
    )
    
    $
    103,085
 January 3, 2009Gross
    
    
    
    
    
    
    NetCarrying
    
    
    Accumulated
    
    
    CarryingAmount
    
    
    Amortization
    
    
    Amount(in thousands)Patents and trademarks
    
    $
    38,515
    
    
    $
    (28,803
    )
    
    $
    9,712Core technology
    
    
    37,485
    
    
    
    (13,765
    )
    
    
    23,720Developed technology
    
    
    125,742
    
    
    
    (51,098
    )
    
    
    74,644Customer and distributor relationships and other
    
    
    897
    
    
    
    (389
    )
    
    
    508Total purchased intangible assets
    
    $
    202,639
    
    
    $
    (94,055
    )
    
    $
    108,584
  11. Other Assets
   15




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##### Table of Contents



12. Long-Term Debt
      16




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##### Table of Contents




    
    The Companys estimated non-convertible borrowing rate as of May 16, 2004  the date the
senior subordinated convertible notes were issued;
    
    The amount and timing of cash flows; and
    
    The expected life.
   Three Months Ended July 4, 2009
    
    
    Six Months Ended July 4, 2009Excluding
    
    
    Incremental impact
    
    
    
    
    
    
    Excluding
    
    
    Incremental impactimpact of FSP
    
    
    of adoption of
    
    
    
    
    
    
    impact of FSP
    
    
    of adoption ofAPB 14-1
    
    
    FSP APB 14-1
    
    
    As reported
    
    
    APB 14-1
    
    
    FSP APB 14-1
    
    
    As reported(in thousands, except per share amounts)Net income before interest and
amortization expense (net of tax)
    
    $
    3,566
    
    
    
    
    
    
    $
    3,566
    
    
    $
    10,927
    
    
    
    
    
    
    $
    10,927Interest and amortization expense
(net of tax):Interest expense
    
    
    (853
    )
    
    $
    (1,910
    )
    
    
    (2,763
    )
    
    
    (1,706
    )
    
    $
    (3,820
    )
    
    
    (5,526
    )Amortization of debt issuance costs
    
    
    (155
    )
    
    
    52
    
    
    
    (103
    )
    
    
    (310
    )
    
    
    104
    
    
    
    (206
    )Income tax benefit
    
    
    398
    
    
    
    734
    
    
    
    1,132
    
    
    
    796
    
    
    
    1,468
    
    
    
    2,264Impact on net income
    
    
    (610
    )
    
    $
    (1,124
    )
    
    
    (1,734
    )
    
    
    (1,220
    )
    
    $
    (2,248
    )
    
    
    (3,468
    )Net income
    
    $
    2,956
    
    
    
    
    
    
    $
    1,832
    
    
    $
    9,707
    
    
    
    
    
    
    $
    7,459Net income per share:Basic and diluted
    
    $
    0.05
    
    
    
    
    
    
    $
    0.03
    
    
    $
    0.17
    
    
    
    
    
    
    $
    0.13
 17




---



##### Table of Contents



Three Months Ended June 28, 2008
    
    
    Six Months Ended June 28, 2008Excluding
    
    
    Incremental impact
    
    
    
    
    
    
    Excluding
    
    
    Incremental impactimpact of FSP
    
    
    of adoption of
    
    
    
    
    
    
    impact of FSP
    
    
    of adoption ofAPB 14-1
    
    
    FSP APB 14-1
    
    
    As adjusted
    
    
    APB 14-1
    
    
    FSP APB 14-1
    
    
    As adjusted(in thousands, except per share amounts)Net income before interest and
amortization expense (net of tax)
    
    $
    9,262
    
    
    
    
    
    
    $
    9,262
    
    
    $
    10,220
    
    
    
    
    
    
    $
    10,220Interest and amortization expense
(net of tax):Interest expense
    
    
    (853
    )
    
    $
    (1,750
    )
    
    
    (2,603
    )
    
    
    (1,706
    )
    
    $
    (3,500
    )
    
    
    (5,206
    )Amortization of debt issuance costs
    
    
    (155
    )
    
    
    52
    
    
    
    (103
    )
    
    
    (310
    )
    
    
    104
    
    
    
    (206
    )Income tax benefit
    
    
    398
    
    
    
    670
    
    
    
    1,068
    
    
    
    796
    
    
    
    1,342
    
    
    
    2,138Impact on net income
    
    
    (610
    )
    
    $
    (1,028
    )
    
    
    (1,638
    )
    
    
    (1,220
    )
    
    $
    (2,054
    )
    
    
    (3,274
    )Net income
    
    $
    8,652
    
    
    
    
    
    
    $
    7,624
    
    
    $
    9,000
    
    
    
    
    
    
    $
    6,946Net income per share:Basic
    
    $
    0.16
    
    
    
    
    
    
    $
    0.14
    
    
    $
    0.17
    
    
    
    
    
    
    $
    0.13Diluted
    
    $
    0.16
    
    
    
    
    
    
    $
    0.14
    
    
    $
    0.16
    
    
    
    
    
    
    $
    0.13
  Net Increase (Decrease)AdditionalLong-term
    
    
    Debt issuance
    
    
    Deferred tax
    
    
    paid-indebt
    
    
    costs
    
    
    liability
    
    
    capital
    
    
    Deficit(in thousands)Allocation of long-term debt proceeds and issuance
costs to equity component on issuance date
    
    $
    (48,508
    )
    
    $
    (1,462
    )
    
    $
    18,584
    
    
    $
    28,462
    
    
    $
    Cumulative retrospective impact from amortization of
discount on liability component and debt issuance
costs
    
    
    21,718
    
    
    
    754
    
    
    
    (8,282
    )
    
    
    
    
    
    
    12,682Cumulative retrospective impact as of December 29, 2007
    
    
    (26,790
    )
    
    
    (708
    )
    
    
    10,302
    
    
    
    28,462
    
    
    
    12,682Retrospective impact from amortization of discount on
liability component and debt issuance costs during the
period
    
    
    7,155
    
    
    
    209
    
    
    
    (2,745
    )
    
    
    
    
    
    
    4,201Cumulative retrospective impact as of January 3, 2009
    
    $
    (19,635
    )
    
    $
    (499
    )
    
    $
    7,557
    
    
    $
    28,462
    
    
    $
    16,883
 AdditionalLong-term
    
    
    Debt issuance
    
    
    Deferred tax
    
    
    paid-indebt
    
    
    costs
    
    
    liability
    
    
    capital
    
    
    Deficit(in thousands)January 3, 2009, balance as previously reported
    
    $
    143,750
    
    
    $
    1,475
    
    
    $
    31,285
    
    
    $
    500,195
    
    
    $
    39,751Cumulative retrospective impact as of January 3, 2009
    
    
    (19,635
    )
    
    
    (499
    )
    
    
    7,557
    
    
    
    28,462
    
    
    
    16,883January 3, 2009, as adjusted
    
    $
    124,115
    
    
    $
    976
    
    
    $
    38,842
    
    
    $
    528,657
    
    
    $
    56,634
  July 4, 2009
    
    
    January 3, 2009(in thousands)Long-term debtPrincipal amount
    
    $
    143,750
    
    
    $
    143,750Unamortized discount
    
    
    (15,814
    )
    
    
    (19,635
    )Net carrying amount
    
    $
    127,936
    
    
    $
    124,115Equity component, net of income tax benefit
    
    $
    28,462
    
    
    $
    28,462
 18




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##### Table of Contents



13. Share-Based Compensation
   Three Months Ended
    
    
    Six Months EndedJuly 4,
    
    
    June 28,
    
    
    July 4,
    
    
    June 28,2009
    
    
    2008
    
    
    2009
    
    
    2008(in thousands)Cost of product sales
    
    $
    508
    
    
    $
    471
    
    
    $
    1,020
    
    
    $
    913Selling, general and administrative
    
    
    2,061
    
    
    
    1,562
    
    
    
    4,466
    
    
    
    3,236Research and development
    
    
    780
    
    
    
    596
    
    
    
    1,899
    
    
    
    1,344Total share-based compensation expense before taxes
    
    
    3,349
    
    
    
    2,629
    
    
    
    7,385
    
    
    
    5,493Tax benefit for share-based compensation expense
    
    
    942
    
    
    
    1,153
    
    
    
    2,063
    
    
    
    1,795Total share-based compensation (net of taxes)
    
    $
    2,407
    
    
    $
    1,476
    
    
    $
    5,322
    
    
    $
    3,698
  Share-Based Payment
  19




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##### Table of Contents



Equity Plan
  Stock Options
   Three Months Ended
    
    Six Months EndedJuly 4, 2009
    
    June 28, 2008
    
    July 4, 2009
    
    June 28, 2008Risk-free interest rate (weighted average)
    
    
    2.97
    %
    
    
    3.10
    %
    
    
    2.32
    %
    
    
    3.25
    %Expected volatility
    
    
    53
    %
    
    
    40
    %
    
    
    53
    %
    
    
    40
    %Expected option term (years)
    
    
    4.91 to 6.02
    
    
    
    5.09 to 6.07
    
    
    
    4.90 to 6.04
    
    
    
    5.09 to 6.07Dividends
    
    None
        
    None
    
    
    None
    
    
    None
   20




---



##### Table of Contents



Number of
    
    
    Weighted
    
    
    Weighted AverageOptions
    
    
    Average Exercise
    
    
    Remaining Contract(in thousands)
    
    
    Price Per Share
    
    
    Life (years)Outstanding options at January 3, 2009
    
    
    4,259
    
    
    $
    16.37
    
    
    
    5.98Granted
    
    
    336
    
    
    
    23.97Exercised
    
    
    (204
    )
    
    
    14.36Forfeited or expired
    
    
    (78
    )
    
    
    23.69Outstanding options at July 4, 2009
    
    
    4,313
    
    
    $
    16.93
    
    
    
    5.84Outstanding options exercisable at July 4, 2009
    
    
    3,073
    
    
    $
    15.83
    
    
    
    4.92Outstanding options vested at July 4, 2009 and expected to vest
    
    
    4,169
    
    
    $
    16.82
    
    
    
    5.74
  Restricted Stock
    Number of
    
    
    Weighted AverageShares
    
    
    Grant Date Fair(in thousands)
    
    
    ValueOutstanding unvested restricted stock at January 3, 2009
    
    
    983
    
    
    $
    16.83Granted
    
    
    
    
    
    
    Vested
    
    
    (305
    )
    
    
    17.00Forfeited or expired
    
    
    (33
    )
    
    
    17.36Outstanding unvested restricted stock at July 4, 2009
    
    
    645
    
    
    $
    16.72
 Restricted Stock Units
   Number of
    
    
    Weighted Average
    
    
    Weighted AverageUnits
    
    
    Grant Date Fair
    
    
    Remaining Contract(in thousands)
    
    
    Value
    
    
    Life (in years)Outstanding units at January 3, 2009
    
    
    28
    
    
    $
    16.66
    
    
    
    2.46Granted
    
    
    463
    
    
    
    24.42Released
    
    
    (32
    )
    
    
    23.52Forfeited or expired
    
    
    (10
    )
    
    
    23.93Outstanding units at July 4, 2009
    
    
    449
    
    
    $
    24.03
    
    
    
    3.60
 21




---



##### Table of Contents



Employee Stock Purchase Plan
   Risk-free interest rate
    
    
    0.31
    %Expected volatility
    
    
    55
    %Expected option life
    
    
    0.50
    yearsDividends
    
    
    None
  14. Income Taxes
     22




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##### Table of Contents



Accounting for Uncertainty in
Income Taxes, an interpretation of SFAS No. 109
 15. Net Income Per Share
  Three Months Ended
    
    
    Six Months EndedJuly 4,
    
    
    June 28,
    
    
    July 4,
    
    
    June 28,2009
    
    
    2008
    
    
    2009
    
    
    2008(in thousands, except per share data)Net income for basic and diluted share calculation
    
    $
    1,832
    
    
    $
    7,624
    
    
    $
    7,459
    
    
    $
    6,946Weighted average number of common shares-basic
    
    
    56,468
    
    
    
    54,556
    
    
    
    56,426
    
    
    
    54,389Dilutive effect of stock-based compensation plans
    
    
    1,372
    
    
    
    778
    
    
    
    1,356
    
    
    
    716Weighted average number of common shares-diluted
    
    
    57,840
    
    
    
    55,334
    
    
    
    57,782
    
    
    
    55,105Net income per common share:Basic and diluted
    
    $
    0.03
    
    
    $
    0.14
    
    
    $
    0.13
    
    
    $
    0.13
  Three Months Ended
    
    Six Months EndedJuly 4,
    
    June 28,
    
    July 4,
    
    June 28,2009
    
    2008
    
    2009
    
    2008(in thousands)Options to purchase
shares not included
in the computation of
diluted income per
share because their
inclusion would be
antidilutive
    
    
    344
    
    
    
    2,411
    
    
    
    253
    
    
    
    2,486
  23




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##### Table of Contents



16. Enterprise and Related Geographic Information
   Three Months Ended
    
    
    Six Months EndedJuly 4,
    
    
    June 28,
    
    
    July 4,
    
    
    June 28,2009
    
    
    2008
    
    
    2009
    
    
    2008(in thousands)Product sales:Cardiovascular
    
    $
    69,222
    
    
    $
    57,506
    
    
    $
    133,851
    
    
    $
    97,727ITC
    
    
    22,837
    
    
    
    25,142
    
    
    
    47,674
    
    
    
    49,348Total product sales
    
    $
    92,059
    
    
    $
    82,648
    
    
    $
    181,525
    
    
    $
    147,075Income (loss) before income taxes and other:Cardiovascular (a)(c)
    
    $
    17,059
    
    
    $
    13,399
    
    
    $
    35,586
    
    
    $
    15,225ITC(a)(c)
    
    
    (2,198
    )
    
    
    1,272
    
    
    
    (3,263
    )
    
    
    2,077Corporate (b)(c)
    
    
    (10,876
    )
    
    
    (3,840
    )
    
    
    (18,783
    )
    
    
    (7,085
    )Income (loss) from operations
    
    
    3,985
    
    
    
    10,831
    
    
    
    13,540
    
    
    
    10,217Other income and (expense):Interest expense (b)
    
    
    (3,040
    )
    
    
    (2,828
    )
    
    
    (5,906
    )
    
    
    (5,415
    )Interest income and other (b)
    
    
    1,637
    
    
    
    2,281
    
    
    
    2,625
    
    
    
    4,459Income before income taxes
    
    $
    2,582
    
    
    $
    10,284
    
    
    $
    10,259
    
    
    $
    9,261
 July 4,
    
    
    January 3,2009
    
    
    2009(in thousands)Total assets:Cardiovascular
    
    $
    327,063
    
    
    $
    321,605ITC
    
    
    58,396
    
    
    
    61,552Corporate (b)
    
    
    318,102
    
    
    
    300,928Total assets
    
    $
    703,561
    
    
    $
    684,085
 
 (a)
    
    The Cardiovascular segment includes amortization expense on purchased intangible assets of
$2.4 million and $5.1 million for the three and six months ended July 4, 2009, respectively,
and $3.1 million and $6.2 million for the three and six months ended June 28, 2008,
respectively. The ITC segment also includes amortization expense of $0.2 million and $0.4
million for the three and six months ended July 4, 2009, respectively, and $0.2 million and
$0.4 million for the three and six months ended June 28, 2008, respectively.(b)
    
    Represents unallocated costs or assets, not specifically identified to any particular
business segment.(c)
    
    Includes share-based compensation expense of $1.9 million, $1.0 million and $0.5 million for
Cardiovascular, ITC and Corporate, respectively, for the three months ended July 4, 2009 and
$1.6 million, $0.7 million and $0.4 million for Cardiovascular, ITC and Corporate,
respectively, for the three months ended June 28, 2008 and share-based compensation expense of
$4.2 million, $2.1 million and $1.1 million for Cardiovascular, ITC and Corporate,
respectively, for the six months ended July 4, 2009; and $3.2 million, $1.4 million and $0.8
million for Cardiovascular, ITC and Corporate, respectively, for the six months ended June 28,
2008. 24




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJuly 4, 2009
    
    
    June 28, 2008
    
    
    July 4, 2009
    
    
    June 28, 2008(in thousands)Domestic
    
    $
    69,726
    
    
    $
    60,684
    
    
    $
    137,151
    
    
    $
    106,057International
    
    
    22,333
    
    
    
    21,964
    
    
    
    44,374
    
    
    
    41,018Total product sales
    
    $
    92,059
    
    
    $
    82,648
    
    
    $
    181,525
    
    
    $
    147,075
 17. Subsequent Events
  25




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Forward-Looking Statements
 This Quarterly Report on Form 10-Q includes 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. These statements can be identified by the words expects, projects,
hopes, believes, intends, should, estimate, will, would, may, anticipates,
plans, could and other similar words. Actual results, events or performance could differ
materially from these forward-looking statements based on a variety of factors, many of which are
beyond our control. Therefore, readers are cautioned not to put undue reliance on these statements.
Factors that could cause actual results or conditions to differ from those anticipated by these and
other forward-looking statements include those more fully described in the Risk Factors section
of our 2008 Annual Report on Form 10-K (the 2008 Annual Report), the Risk Factors section of
our first quarter 2009 Quarterly Report on Form 10-Q (Q1 2009 Quarterly Report) and in other
documents we file with the Securities and Exchange Commission (SEC). These forward-looking
statements speak only as of the date hereof. We are not under any obligation, and we expressly
disclaim any obligation, to publicly release any revisions or updates to these forward-looking
statements that may be made to reflect events or circumstances after the date hereof, or to reflect
the occurrence of unanticipated events.
 The following presentation of managements discussion and analysis of our financial condition
and results of operations should be read together with our unaudited condensed consolidated financial
statements included in this Quarterly Report on Form 10-Q .
 OVERVIEW
     26




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##### Table of Contents



Our Business Model
   
    
    Circulatory Support Products.Our mechanical circulatory support products include the
PVAD, IVAD, HeartMate XVE, HeartMate II and CentriMag for acute, intermediate and long-term
mechanical circulatory support for patients with advanced HF. We also manufacture and sell
small diameter grafts using our proprietary materials to address the vascular access market
for hemodialysis.
  
    
    Point-of-Care Diagnostics.Our point-of-care products include diagnostic test systems
that monitor blood coagulation while a patient is being administered certain anticoagulants,
as well as monitor blood gas/electrolytes, oxygenation and chemistry status.
    
    Incision. Our incision products include devices used to obtain a patients blood sample
for diagnostic testing and screening for platelet function.
 Cardiovascular Division
     The Paracorporeal Ventricular Assist Device
   27




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##### Table of Contents



The Implantable Ventricular Assist Device
  The HeartMate XVE
  The HeartMate II
  The CentriMag
  28




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##### Table of Contents



Vascular Graft Products
  ITC Division
  Hospital point-of-care
 The HEMOCHRON Whole Blood Coagulation System
  The IRMA TRUpoint Blood Analysis System
  The AVOXimeter Whole Blood Co-Oximeter/Oximeter System
   Alternate site point-of-care
 The ProTime Microcoagulation System
  The Hgb Pro Professional Hemoglobin Testing System
   29




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##### Table of Contents



Incision Products
   Critical Accounting Policies and Estimates
  Revenue Recognition
 Revenue Recognition When Rights of Return Exists
   Reserves
     30




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##### Table of Contents



Income Taxes
    Evaluation of Purchased Intangibles and Goodwill for Impairment
 Accounting
for the Impairment or Disposal of Long-Lived Assets
 Goodwill and Other Intangible Assets
 Valuation of Share-Based Awards
 Share-Based Payment
 31




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##### Table of Contents



Fair Value Measurements
 Fair Value Measurements,
  
    
    Level 1  Valuations based on quoted prices in active markets for identical assets or
liabilities that we have the ability to access. Assets and liabilities utilizing Level 1
inputs include broker-dealer quote securities that can be traded in an active market. Since
valuations are based on quoted prices that are readily and regularly available in an active
market, a significant degree of judgment is not required.
    
    Level 2  Valuations based on quoted prices of similar investments in active markets, of
similar or identical investments in markets that are not active or model based valuations
for which all significant inputs and value drivers are observable, directly or indirectly.
Assets and liabilities utilizing Level 2 inputs primarily include municipal bonds, variable
demand notes, corporate bonds and our senior subordinated convertible notes, except the
make-whole provision, which uses Level 3 inputs, described below.
    
    Level 3  Valuations based on inputs that are unobservable and significant to the
overall fair value measurement. Assets and liabilities utilizing Level 3 inputs include
certain auction rate securities, our Levitronix convertible debenture and the make-whole
feature of our senior subordinated convertible notes. Given the current credit market
illiquidity for auction rate securities, our estimates are subject to significant judgment
by management.
   32




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##### Table of Contents



Results of Operations
  Three Months Ended
    
    
    Six Months EndedJuly 4, 2009
    
    
    June 28, 2008
    
    
    July 4, 2009
    
    
    June 28, 2008(in thousand, except for percentage data)As adjusted (1)
    
    
    
    
    
    
    
    
    
    
    As adjusted (1)Product sales
    
    $
    92,059
    
    
    
    100
    %
    
    $
    82,648
    
    
    
    100
    %
    
    $
    181,525
    
    
    
    100
    %
    
    $
    147,075
    
    
    
    100
    %Cost of product sales
    
    
    41,304
    
    
    
    45
    
    
    
    31,825
    
    
    
    39
    
    
    
    76,743
    
    
    
    42
    
    
    
    60,415
    
    
    
    41Gross profit
    
    
    50,755
    
    
    
    55
    
    
    
    50,823
    
    
    
    61
    
    
    
    104,782
    
    
    
    58
    
    
    
    86,660
    
    
    
    59Operating expenses:Selling, general and administrative
    
    
    30,776
    
    
    
    33
    
    
    
    23,857
    
    
    
    29
    
    
    
    58,231
    
    
    
    32
    
    
    
    44,493
    
    
    
    31Research and development
    
    
    13,426
    
    
    
    15
    
    
    
    12,839
    
    
    
    15
    
    
    
    27,512
    
    
    
    15
    
    
    
    25,358
    
    
    
    17Amortization of purchased
intangible assets
    
    
    2,568
    
    
    
    3
    
    
    
    3,296
    
    
    
    4
    
    
    
    5,499
    
    
    
    3
    
    
    
    6,592
    
    
    
    4Total operating expenses
    
    
    46,770
    
    
    
    51
    
    
    
    39,992
    
    
    
    48
    
    
    
    91,242
    
    
    
    50
    
    
    
    76,443
    
    
    
    52Income from operations
    
    
    3,985
    
    
    
    4
    
    
    
    10,831
    
    
    
    13
    
    
    
    13,540
    
    
    
    8
    
    
    
    10,217
    
    
    
    7Other income and (expense):Interest expense and other
    
    
    (3,040
    )
    
    
    (3
    )
    
    
    (2,828
    )
    
    
    (3
    )
    
    
    (5,906
    )
    
    
    (3
    )
    
    
    (5,415
    )
    
    
    (4
    )Interest income and other
    
    
    1,637
    
    
    
    2
    
    
    
    2,281
    
    
    
    3
    
    
    
    2,625
    
    
    
    1
    
    
    
    4,459
    
    
    
    3Income
before income taxes
    
    
    2,582
    
    
    
    3
    
    
    
    10,284
    
    
    
    13
    
    
    
    10,259
    
    
    
    6
    
    
    
    9,261
    
    
    
    6Income tax expense
    
    
    (750
    )
    
    
    (1
    )
    
    
    (2,660
    )
    
    
    (3
    )
    
    
    (2,800
    )
    
    
    (2
    )
    
    
    (2,315
    )
    
    
    (2
    )Net income
    
    $
    1,832
    
    
    
    2
    
    
    $
    7,624
    
    
    
    10
    
    
    $
    7,459
    
    
    
    4
    
    
    $
    6,946
    
    
    
    4
 
 (1)
    
    Adjusted for the retrospective adoption of Financial Accounting Standards Board (FASB)
Staff Position (FSP) APB 14-1, Accounting for Convertible Debt Instruments That May Be
Settled in Cash upon Conversion (Including Partial Cash Settlement).See Note 12, Long-Term
Debt to the unaudited  condensed consolidated financial statements.  Three and six months ended July 4, 2009 and June 28, 2008
 Product Sales
  Three Months Ended
    
    
    Six Months EndedJuly 4, 2009
    
    
    June 28, 2008
    
    
    % Change
    
    
    July 4, 2009
    
    
    June 28, 2008
    
    
    % Change(in thousands)
    
    
    
    
    
    
    (in thousands)Cardiovascular
    
    $
    69,222
    
    
    $
    57,506
    
    
    
    20.4
    
    
    $
    133,851
    
    
    $
    97,727
    
    
    
    37.0ITC
    
    
    22,837
    
    
    
    25,142
    
    
    
    9.2
    
    
    
    47,674
    
    
    
    49,348
    
    
    
    3.4Total product sales
    
    $
    92,059
    
    
    $
    82,648
    
    
    
    11.4
    
    
    $
    181,525
    
    
    $
    147,075
    
    
    
    23.4
  33




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##### Table of Contents



Gross Profit
  Three Months Ended
    
    
    Six Months EndedJuly 4, 2009
    
    
    June 28, 2008
    
    
    July 4, 2009
    
    
    June 28, 2008(in thousands, except percentages)Total gross profit
    
    $
    50,755
    
    
    $
    50,823
    
    
    $
    104,782
    
    
    $
    86,660Total gross margin
    
    
    55.1
    %
    
    
    61.5
    %
    
    
    57.7
    %
    
    
    58.9
    %
   Selling, General and Administrative
  Three Months Ended
    
    
    Six Months EndedJuly 4, 2009
    
    
    June 28, 2008
    
    
    % Change
    
    
    July 4, 2009
    
    
    June 28, 2008
    
    
    % Change(in thousands)
    
    
    
    
    
    
    (in thousands)Total selling,
general and
administration
    
    $
    30,776
    
    
    $
    23,857
    
    
    
    29.0
    
    
    $
    58,231
    
    
    $
    44,493
    
    
    
    30.9
   34




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##### Table of Contents



Research and Development
  Three Months Ended
    
    
    Six Months EndedJuly 4, 2009
    
    
    June 28, 2008
    
    
    % Change
    
    
    July 4, 2009
    
    
    June 28, 2008
    
    
    % Change(in thousands)
    
    
    
    
    
    
    (in thousands)Total research and
development costs
    
    $
    13,426
    
    
    $
    12,839
    
    
    
    4.6
    
    
    $
    27,512
    
    
    $
    25,358
    
    
    
    8.5
    Amortization of Purchased Intangible Assets
  Interest Expense and Other
  Three Months Ended
    
    
    Six Months EndedJuly 4, 2009
    
    
    June 28, 2008
    
    
    % Change
    
    
    July 4, 2009
    
    
    June 28, 2008
    
    
    % Change(in thousands)
    
    
    
    
    
    
    (in thousands)Interest expense
    
    $
    2,937
    
    
    $
    2,725
    
    
    
    7.8
    
    
    $
    5,700
    
    
    $
    5,209
    
    
    
    9.4Amortization of debt
issuance costs related to senior subordinated convertible notes
    
    
    103
    
    
    
    103
    
    
    
    
    
    
    
    206
    
    
    
    206
    
    
    
    Total interest expense
    
    $
    3,040
    
    
    $
    2,828
    
    
    
    7.5
    
    
    $
    5,906
    
    
    $
    5,415
    
    
    
    9.1
  35




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##### Table of Contents



Interest Income and Other
  Three Months Ended
    
    
    Six Months EndedJuly 4, 2009
    
    
    June 28, 2008
    
    
    % Change
    
    
    July 4, 2009
    
    
    June 28, 2008
    
    
    % Change(in thousands)
    
    
    
    
    
    
    (in thousands)Interest income
    
    $
    1,419
    
    
    $
    2,109
    
    
    
    32.7
    
    
    $
    2,723
    
    
    $
    4,250
    
    
    
    35.9Foreign currency, net
    
    
    (11
    )
    
    
    15
    
    
    
    168.5
    
    
    
    (513
    )
    
    
    83
    
    
    
    715.2Other
    
    
    229
    
    
    
    157
    
    
    
    45.9
    
    
    
    415
    
    
    
    126
    
    
    
    229.4Total interest income and other
    
    $
    1,637
    
    
    $
    2,281
    
    
    
    28.2
    
    
    $
    2,625
    
    
    $
    4,459
    
    
    
    41.1
   Income Taxes
    36




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##### Table of Contents



Liquidity and Capital Resources
 Cash, Cash Equivalents and Investments
     July 4,
    
    
    January 3,2009
    
    
    2009(in thousands)Cash and cash equivalents
    
    $
    81,474
    
    
    $
    107,053Restricted cash and cash equivalents
    
    
    20,036
    
    
    
    Short-term investments
    
    
    169,038
    
    
    
    141,598Long-term investments
    
    
    24,682
    
    
    
    29,959Total cash, cash equivalents and investments
    
    $
    295,230
    
    
    $
    278,610
   37




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##### Table of Contents



Auction RateSecurities(in thousands)Balance at January 3, 2009
    
    $
    29,959Settlement at par
    
    
    (9,400
    )Unrealized holding gain, included in other comprehensive loss
    
    
    4,123Balance at July 4, 2009
    
    $
    24,682
   Long-term obligation
  38




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##### Table of Contents



Cash Flow Activities
  July 4,
    
    
    June 28,2009
    
    
    2008(in thousands)Net cash provided by operating activities
    
    $
    17,076
    
    
    $
    17,968Net cash (used in) provided by investing activities
    
    
    (45,611
    )
    
    
    21,636Net cash provided by financing activities
    
    
    3,047
    
    
    
    786Effect of exchange rate changes on cash and cash equivalents
    
    
    (91
    )
    
    
    27Net (decrease) increase in cash and cash equivalents
    
    $
    (25,579
    )
    
    $
    40,417
 Cash Provided by Operating Activities
  Cash Used in Investing Activities
  Cash Provided by Financing Activities
  Off Balance Sheet Arrangements
  Contractual Obligations
   39




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
 Interest Rate Risk
  Foreign Currency Rate Fluctuations
   
 
 ITEM 4. CONTROLS AND PROCEDURES
  Disclosure Controls and Procedures
  40




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##### Table of Contents



Changes to Internal Controls
  Inherent Limitations on Controls and Procedures
   41




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##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1A. RISK FACTORS
  
 ITEM 2: UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS
   Total number
    
    
    Approximateof shares
    
    
    value of sharesTotal
    
    
    
    
    
    
    purchased
    
    
    authorized to benumber
    
    
    
    
    
    
    under
    
    
    purchased underof shares
    
    
    Average
    
    
    publicly
    
    
    publiclypurchased
    
    
    price paid
    
    
    announced
    
    
    announced(2)
    
    
    per share
    
    
    programs (1)
    
    
    programs(in thousands, except per share data)April 5, 2009 through May 2, 2009
    
    
    1.5
    
    
    $
    27.29
    
    
    
    
    
    
    $
    May 3, 2009 through May 30, 2009
    
    
    1.8
    
    
    
    29.13
    
    
    
    
    
    
    
    May 31, 2009 through July 4, 2009
    
    
    1.3
    
    
    
    26.05
    
    
    
    
    
    
    
    Total
    
    
    4.6
    
    
    $
    27.63
    
    
    
    
    
    
    $
    
 
 (1)
    
    Our share repurchase programs, which authorized us to repurchase up to a total of $130
million of our common shares, were announced on February 11, 2004 as a $25 million program, on
May 12, 2004 as a $60 million program, on July 29, 2004 as a $25 million program and on
February 2, 2006 as a $20 million program. These programs authorize us to acquire shares in
the open market or in privately negotiated transactions and do not have an expiration date. No
shares were repurchased under these programs during the three months ended July 4, 2009. As
July 4, 2009, we have $10.1 million remaining under our share repurchase programs.(2)
    
    Shares purchased that were not part of our publicly announced repurchase programs represent
the surrender value of shares of restricted stock used to pay income taxes due upon vesting,
and do not reduce the dollar value that may yet be purchased under our publicly announced
repurchase programs. 
 42




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##### Table of Contents



ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  1.
    
    To elect the following directors to serve for the ensuing year until their successors are
elected:
 Number of VotesFor
    
    WithheldGerhard F. Burbach
    
    
    49,505,450
    
    
    
    2,189,631J. Daniel Cole
    
    
    50,487,808
    
    
    
    1,207,273Steven H. Collis
    
    
    50,981,069
    
    
    
    714,012Neil F. Dimick
    
    
    47,462,953
    
    
    
    4,232,128Elisha W. Finney
    
    
    50,985,139
    
    
    
    709,942D. Keith Grossman
    
    
    25,317,885
    
    
    
    26,377,196Paul A. LaViolette
    
    
    50,601,637
    
    
    
    1,093,444Daniel M. Mulvena
    
    
    50,490,992
    
    
    
    1,204,089
 2.
    
    To ratify of the appointment of Deloitte & Touche LLP as the Companys independent auditors
for its fiscal year ending January 2, 2010:
 Number ofVotesFor
    
    
    51,060,271Against
    
    
    605,963Abstain
    
    
    28,847
 43




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##### Table of Contents



ITEM 6. EXHIBITS
 31.1
    
    Section 302 Certification of Chief Executive Officer.31.2
    
    Section 302 Certification of Chief Financial Officer.32.1
    
    Section 906 Certification of Chief Executive Officer.32.2
    
    Section 906 Certification of Chief Financial Officer.
 44




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##### Table of Contents



SIGNATURES
  THORATEC CORPORATIONDate: August 12, 2009
    /s/ Gerhard F. BurbachGerhard F. BurbachChief Executive OfficerDate: August 12, 2009
    /s/ David V. SmithDavid V. SmithExecutive Vice President, Chief Financial Officer (Principal  Accounting Officer) 45