##### 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 March 31, 2007
 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
(State or other jurisdiction of incorporation or 
organization)
    
    94-2340464
(I.R.S. Employer Identification No.)6035 Stoneridge Drive, Pleasanton, California
(Address of principal executive offices)
    
    94588
(Zip Code)
 (925) 847-8600
(Registrants telephone number, including area code)
 Indicate by check mark whether the registrant: þ o
 Indicate by check mark whether the registrant is, a large accelerated filer, an accelerated filer
or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act):
 þ o o
 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act):  o þ




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##### 



THORATEC CORPORATION AND SUBSIDIARIES
 TABLE OF CONTENTS
 Part I. Financial InformationItem 1. Condensed Consolidated Financial Statements (unaudited)Condensed Consolidated Balance Sheets as of March 31, 2007 and December 30, 2006Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2007 and April 1, 2006Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2007 and April 1, 2006Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2007 and
April 1, 2006Notes to Condensed Consolidated Financial StatementsItem 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 3. Quantitative and Qualitative Disclosure of Market RiskItem 4. Controls and ProceduresPart II. Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sale of Equity Securities and Use of ProceedsItem 6. ExhibitsSignaturesExhibitsEXHIBIT 10.34EXHIBIT 10.35EXHIBIT 10.36EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  
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PART I. FINANCIAL INFORMATION
 
 ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 THORATEC CORPORATION AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (unaudited)
(in thousands)
 March 31,
    
    
    December 30,2007
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    13,356
    
    
    $
    67,453Short-term available-for-sale investments
    
    
    180,330
    
    
    
    127,025Restricted short-term investments
    
    
    1,703
    
    
    
    1,681Receivables, net of allowances of $596 and $491, respectively
    
    
    43,581
    
    
    
    43,718Inventories
    
    
    56,594
    
    
    
    49,666Deferred tax asset
    
    
    5,932
    
    
    
    6,623Prepaid expenses and other assets
    
    
    5,152
    
    
    
    2,986Total current assets
    
    
    306,648
    
    
    
    299,152Property, plant and equipment, net
    
    
    46,806
    
    
    
    45,808Goodwill
    
    
    98,494
    
    
    
    98,494Purchased intangible assets, net
    
    
    131,196
    
    
    
    134,349Other assets
    
    
    16,649
    
    
    
    13,332Total Assets
    
    $
    599,793
    
    
    $
    591,135LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    12,823
    
    
    $
    13,591Accrued compensation
    
    
    10,186
    
    
    
    12,043Accrued income taxes
    
    
    327
    
    
    
    3,691Other accrued liabilities
    
    
    5,416
    
    
    
    4,136Total current liabilities
    
    
    28,752
    
    
    
    33,461Senior subordinated convertible notes
    
    
    143,750
    
    
    
    143,750Long-term deferred tax liability
    
    
    45,714
    
    
    
    46,421Other
    
    
    7,727
    
    
    
    2,430Total Liabilities
    
    
    225,943
    
    
    
    226,062Shareholders equity:Common shares: authorized 100,000; issued and outstanding 53,159 and 52,329, respectively
    
    
    437,917
    
    
    
    427,941Accumulated deficit
    
    
    (64,890
    )
    
    
    (63,675
    )Accumulated other comprehensive income (loss):Unrealized loss on investments
    
    
    (15
    )
    
    
    (16
    )Cumulative translation adjustments
    
    
    838
    
    
    
    823Total accumulated other comprehensive income
    
    
    823
    
    
    
    807Total Shareholders Equity
    
    
    373,850
    
    
    
    365,073Total Liabilities and Shareholders Equity
    
    $
    599,793
    
    
    $
    591,135
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THORATEC CORPORATION AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (unaudited)
(in thousands, except per share data)
 Three Months EndedMarch 31,
    
    
    April 1,2007
    
    
    2006Product sales
    
    $
    57,310
    
    
    $
    48,755Cost of product sales
    
    
    22,797
    
    
    
    20,108Gross profit
    
    
    34,513
    
    
    
    28,647Operating expenses:Selling, general and administrative
    
    
    21,945
    
    
    
    18,060Research and development
    
    
    10,893
    
    
    
    9,585Amortization of purchased intangible assets
    
    
    3,153
    
    
    
    2,974Litigation
    
    
    
    
    
    
    57Total operating expenses
    
    
    35,991
    
    
    
    30,676Loss from operations
    
    
    (1,478
    )
    
    
    (2,029
    )Other income and (expense):Interest expense
    
    
    (1,068
    )
    
    
    (1,103
    )Interest income and other
    
    
    2,187
    
    
    
    1,701Loss before income tax benefit
    
    
    (359
    )
    
    
    (1,431
    )Income tax benefit
    
    
    84
    
    
    
    501Net loss
    
    $
    (275
    )
    
    $
    (930
    )Net loss per share:Basic and diluted
    
    $
    (0.01
    )
    
    $
    (0.02
    )Shares used to compute net loss per share:Basic and diluted
    
    
    52,736
    
    
    
    52,218
  4




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THORATEC CORPORATION AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (unaudited)
(in thousands)
 Three Months EndedMarch 31,
    
    
    April 1,2007
    
    
    2006Cash flows from operating activities:Net loss
    
    $
    (275
    )
    
    $
    (930
    )Adjustments to reconcile net income to net cash used in operating activities:Depreciation and amortization
    
    
    5,337
    
    
    
    4,875Investment premium amortization (net)
    
    
    92
    
    
    
    134Non-cash interest and other expenses
    
    
    359
    
    
    
    1,103Tax benefit related to stock options
    
    
    1,210
    
    
    
    1,896Share-based compensation expense
    
    
    3,503
    
    
    
    2,649Excess tax benefits from share-based compensation
    
    
    (653
    )
    
    
    (1,761
    )Change in net deferred tax liability
    
    
    302
    
    
    
    (1,151
    )Changes in assets and liabilities:Receivables
    
    
    187
    
    
    
    414Inventories
    
    
    (8,079
    )
    
    
    (358
    )Prepaid expenses and other assets
    
    
    (1,258
    )
    
    
    (1,374
    )Accounts payable and other liabilities
    
    
    (1,352
    )
    
    
    (8,117
    )Accrued income taxes
    
    
    (3,372
    )
    
    
    (1,600
    )Other
    
    
    
    
    
    
    (126
    )Net cash used in operating activities
    
    
    (3,999
    )
    
    
    (4,346
    )Cash flows from investing activities:Purchases of available-for-sale investments
    
    
    (149,793
    )
    
    
    (38,900
    )Sales of available-for-sale investments
    
    
    96,335
    
    
    
    21,700Maturities of available-for-sale investments and restricted investments
    
    
    
    
    
    
    14,920Purchases of property, plant and equipment
    
    
    (2,018
    )
    
    
    (15,329
    )Net cash used in investing activities
    
    
    (55,476
    )
    
    
    (17,609
    )Cash flows from financing activities:Proceeds from stock option exercises
    
    
    5,400
    
    
    
    9,173Excess tax benefits from share-based compensation
    
    
    653
    
    
    
    1,761Repurchase and retirement of common shares
    
    
    (671
    )
    
    
    (1,100
    )Net cash provided by financing activities
    
    
    5,382
    
    
    
    9,834Effect of exchange rate changes on cash and cash equivalents
    
    
    (4
    )
    
    
    39Net decrease in cash and cash equivalents
    
    
    (54,097
    )
    
    
    (12,082
    )Cash and cash equivalents at beginning of period
    
    
    67,453
    
    
    
    35,109Cash and cash equivalents at end of period
    
    $
    13,356
    
    
    $
    23,027Supplemental disclosure of cash flow information:Cash paid for taxes
    
    $
    2,609
    
    
    $
    379Supplemental disclosure of non-cash investing and financing activities:Transfers of equipment from inventory
    
    $
    1,286
    
    
    $
    246
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THORATEC CORPORATION AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
 (unaudited)
(in thousands)
 Three Months EndedMarch 31,
    
    
    April 1,2007
    
    
    2006Net loss
    
    $
    (275
    )
    
    $
    (930
    )Other net comprehensive income (loss):Unrealized gain (loss) on investments (net of taxes of ($1) and $38 for the three months
ended March 31, 2007 and April 1, 2006, respectively)
    
    
    (1
    )
    
    
    58Foreign currency translation adjustments (net of taxes of none and $11 for the three months
ended March 31, 2007 and April 1, 2006, respectively)
    
    
    (15
    )
    
    
    39Comprehensive loss
    
    $
    (291
    )
    
    $
    (833
    )
  6




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THORATEC CORPORATION AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)
 1. Basis of Presentation
   2. Income Taxes
      7




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3. Recently Issued Accounting Pronouncements
   4. Cash and cash equivalents
  5. Investments
    8




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6. Financial Instruments
     7. Inventories
  As ofMarch 31,
    
    
    December 30,2007
    
    
    2006(in thousands)Finished goods
    
    $
    21,687
    
    
    $
    22,527Work in process
    
    
    9,913
    
    
    
    7,008Raw materials
    
    
    24,994
    
    
    
    20,131Total
    
    $
    56,594
    
    
    $
    49,666
 8. Property, Plant and Equipment, net
  As ofMarch 31,
    
    
    December 30,2007
    
    
    2006(in thousands)Land
    
    $
    4,096
    
    
    $
    4,096Building
    
    
    12,040
    
    
    
    12,038Building lease
    
    
    2,285
    
    
    
    2,285Equipment
    
    
    50,127
    
    
    
    47,904Rental equipment
    
    
    9,410
    
    
    
    8,612Improvements
    
    
    16,398
    
    
    
    16,258Total
    
    
    94,356
    
    
    
    91,193Accumulated depreciation and amortization
    
    
    (47,550
    )
    
    
    (45,385
    )Property, plant and equipment, net
    
    $
    46,806
    
    
    $
    45,808
 9




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9. Other Assets
 rd rd
  10. Goodwill and Purchased Intangible Assets
   As of March 31, 2007Gross Carrying
    
    
    Accumulated
    
    
    Net CarryingAmount
    
    
    Amortization
    
    
    Amount( in thousands)Patents and trademarks
    
    $
    38,515
    
    
    $
    (22,298
    )
    
    $
    16,217Core technology
    
    
    37,485
    
    
    
    (10,655
    )
    
    
    26,830Developed technology
    
    
    125,742
    
    
    
    (38,352
    )
    
    
    87,390Customer and distributor relationships and other
    
    
    897
    
    
    
    (138
    )
    
    
    759Total purchased intangible assets
    
    $
    202,639
    
    
    $
    (71,443
    )
    
    $
    131,196
 As of December 30, 2006Gross Carrying
    
    
    Accumulated
    
    
    Net CarryingAmount
    
    
    Amortization
    
    
    Amount(in thousands)Patents and trademarks
    
    $
    38,515
    
    
    $
    (21,350
    )
    
    $
    17,165Core technology
    
    
    37,485
    
    
    
    (10,275
    )
    
    
    27,210Developed technology
    
    
    125,742
    
    
    
    (36,564
    )
    
    
    89,178Customer and distributor relationships and other
    
    
    897
    
    
    
    (101
    )
    
    
    796Total purchased intangible assets
    
    $
    202,639
    
    
    $
    (68,290
    )
    
    $
    134,349
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11. Long-Term Debt
  th th
 Fiscal Year2004( in millions)Long Term Debt Offering Proceeds:Principal amount of convertible notes at maturity
    
    $
    247.4Original issue discount
    
    
    (103.7
    )Debt issuance costs
    
    
    (4.3
    )Net proceeds
    
    $
    139.4
     11




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12. Share-Based Compensation
     Equity Plans
   12




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Stock Options
    Three Months EndedMarch 31, 2007
    
    April 1, 2006Risk-free interest rate
    
    
    4.82
    %
    
    
    4.49
    %Expected volatility
    
    
    40
    %
    
    
    40
    %Expected option life
    
    
    5.10 to 6.06 years
    
    
    
    3.88 to 5.25 yearsDividends
    
    None
    
    None
  13




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Number of
    
    
    Weighted
    
    
    Weighted AverageOptions
    
    
    Average Exercise
    
    
    Remaining Contract(in thousands)
    
    
    Price Per Share
    
    
    Life (years)Outstanding options at December 30, 2006
    
    
    6,585
    
    
    $
    14.65
    
    
    
    6.74Granted
    
    
    499
    
    
    
    18.00Exercised
    
    
    (449
    )
    
    
    12.04Forfeited or expired
    
    
    (118
    )
    
    
    16.73Outstanding options at March 31, 2007
    
    
    6,517
    
    
    $
    15.05
    
    
    
    6.77Outstanding options exercisable at March 31, 2007
    
    
    4,057
    
    
    $
    13.45
    
    
    
    5.70
 Restricted Stock
    Number of
    
    
    Weighted AverageShares
    
    
    Grant Date Fair(in thousands)
    
    
    ValueOutstanding unvested restricted stock at December 30, 2006
    
    
    422
    
    
    $
    17.63Granted
    
    
    424
    
    
    
    18.04Vested
    
    
    (112
    )
    
    
    16.80Forfeited or expired
    
    
    (12
    )
    
    
    18.83Outstanding unvested restricted stock at March 31, 2007
    
    
    722
    
    
    $
    17.98
 Restricted Stock Units
   Number of
    
    
    Weighted Average
    
    
    Weighted AverageUnits
    
    
    Grant Date Fair
    
    
    Remaining Contract(in thousands)
    
    
    Value
    
    
    (in years)Outstanding units at December 30, 2006
    
    
    10
    
    
    $
    19.08
    
    
    
    1.74Granted
    
    
    11
    
    
    
    18.05Released
    
    
    (2
    )
    
    
    20.94Forfeited or expired
    
    
    
    
    
    
    Outstanding units at March 31, 2007
    
    
    19
    
    
    $
    20.90
    
    
    
    2.15
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Employee Stock Purchase Plan
 st
  Risk-free interest rate
    
    
    5.10
    %Expected volatility
    
    
    40
    %Expected option life
    
    0.50 yearsDividends
    
    None
  13. Net Loss Per Share
  Three Months EndedMarch 31,
    
    
    April 1,2007
    
    
    2006(in thousands, except per share data)Net loss
    
    $
    (275
    )
    
    $
    (930
    )Weighted average number of common shares-basic
    
    
    52,736
    
    
    
    52,218Dilutive effect of stock options and Employee Stock Purchase Plan shares
    
    
    
    
    
    
    Weighted average number of common shares-diluted
    
    
    52,736
    
    
    
    52,218Net loss per common share basic and diluted
    
    $
    (0.01
    )
    
    $
    (0.02
    )
   15




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14. Business Segment and Geographical Data
   Three Months EndedMarch 31,
    
    
    April 1,2007
    
    
    2006( in thousands)Restated(e)Product sales:Cardiovascular
    
    $
    35,538
    
    
    $
    29,816ITC
    
    
    21,772
    
    
    
    18,939Total product sales
    
    $
    57,310
    
    
    $
    48,755Income(loss) before income taxes:Cardiovascular (a)(d)
    
    $
    1,127
    
    
    $
    636ITC(a)(d)
    
    
    1,398
    
    
    
    690Corporate (b)(d)
    
    
    (4,003
    )
    
    
    (3,298
    )Litigation (c)
    
    
    
    
    
    
    (57
    )Total operating loss
    
    
    (1,478
    )
    
    
    (2,029
    )Other income and (expense):Interest expense
    
    
    (1,068
    )
    
    
    (1,103
    )Interest income and other
    
    
    2,187
    
    
    
    1,701Loss before income tax benefit
    
    $
    (359
    )
    
    $
    (1,431
    )
 
 (a)
    
    Includes amortization expense of $2.9 million for each of the three months ended March 31,
2007 and April 1, 2006, related to the Cardiovascular segment. The ITC segment also includes
amortization expense of $0.2 million and $0.04 million for the three months ended March 31,
2007 and April 1, 2006, respectively.(b)
    
    Represents unallocated costs, not specifically identified to any particular business segment.(c)
    
    Relates to litigation expenses not specifically identified to a particular business segment.(d)
    
    Includes SFAS No. 123(R) expense of $1.3 million, $0.8 million and $1.3 million for
Cardiovascular, ITC and Corporate, respectively, for the three months ended March 31, 2007 and
$1.4 million, $0.7 million and $0.3 million for Cardiovascular, ITC and Corporate,
respectively, for the three months ended April 1, 2006.(e)
    
    The restatement is to reclassify general and administration expenses from the Corporate to
the Cardiovascular segment on a consistent basis to the 2005 Annual Report on Form 10K. As a
result of the restatement, for the three months ended April 1, 2006, income before taxes from
the Cardiovascular segment decreased by $1.6 million and the loss before taxes from Corporate
decreased by $1.6 million.   Three Months EndedMarch 31,
    
    
    April 1,2007
    
    
    2006(in thousands)Domestic
    
    $
    43,678
    
    
    $
    36,646International
    
    
    13,632
    
    
    
    12,109Total product sales
    
    $
    57,310
    
    
    $
    48,755
 16




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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 2006 Annual Report on Form 10-K (the 2006 Annual 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 the results of any revisions 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 condensed consolidated financial
statements included in this Quarterly Report on Form 10-Q .
 Overview
     Our Business Model
   
    
    Circulatory Support Products.Our circulatory support products include the PVAD, IVAD,
HeartMate XVE and HeartMate II for short, intermediate and long-term treatment of advanced
HF. In addition, we market and sell the CentriMag for extra corporeal circulatory support
during cardiac surgery. 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 anticogulants,
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.
 17




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##### Table of Contents



Cardiovascular Division
  
    
    The PVAD is an external device for short to mid-term cardiac support. This device, which
is sold worldwide, is approved to assist left, right and biventricular support and is worn
outside of the body. The PVAD is approved by the FDA for use as a bridge to transplantation
and for post-cardiotomy myocardial recovery.
    
    The IVAD is the only implantable blood pump approved for both bridge-to-transplantation
(BTT) and post-cardiotomy myocardial recovery that can be used for left, right, or
biventricular support. The IVAD utilizes the same internal working components as the PVAD,
but has an outer housing made of a titanium alloy that makes it more suitable for
implantation.
    
    The HeartMate XVE is an implantable device for mid to longer-term cardiac support and is
the only device approved in the U.S., Europe and Canada for permanent support for those
patients ineligible for heart transplantation. This device is designed to assist the pumping
function of the hearts left ventricle and features a unique, textured blood-contacting
surface that eliminates the need for systemic anticoagulation.
    
    The HeartMate II is an implantable device consisting of a miniature rotary blood pump
designed to provide long-term support. Its design is intended to be not only smaller, but
also simpler, quieter, and longer lasting than the current generation of ventricular assist
device. The HeartMate II is CE Mark approved for distribution in Europe, and is in a Phase
II pivotal trial in the U.S.
    
    CentriMag is an external device for short-term circulatory support consisting of a
single-use blood pump, a motor and a device console. This device is 510(k) approved by the
FDA for patients requiring extra corporeal circulatory support during cardiac surgery.
      18




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ITC Division
  
    
    The Hemochron point-of-care coagulation system is used to monitor a patients
coagulation while being administered anticoagulants in various settings, including in the
cardiovascular operating room and cardiac catheterization lab to monitor the drug Heparin,
and in an anticoagulation clinic to monitor the drug warfarin. The system consists of a
small, portable analytical instrument and disposable test cuvettes.
    
    The IRMA point-of-care blood gas/electrolyte and chemistry system is used to monitor a
patients blood gas/electrolyte and chemistry status. The system consists of a small,
portable analytical instrument and disposable test cartridges.
    
    Avox CO-oximetry system is used to assess a patients oxygenation status and is
commonly used in the cardiac catherization lab, the intensive care unit (ICU), the
neonatal intensive care unit (NICU) and the emergency department. The system consists of
a small battery operated instrument and disposable test cuvettes.
    
    The ProTime coagulation monitoring system is used to monitor patients coagulation
while they are taking oral anticoagulants such as warfarin, and can be prescribed for use
by patients at home or can be used in the physicians office or clinic. The system consists
of a small, portable, analytical instrument and disposable test cuvettes.
    
    The Hemoglobin Pro is used by professionals, mainly in the doctors office, to test for
anemia. It provides quick results from a very small blood sample. The system consists of a
small, hand-held test meter and disposable test strips.
    
    Tenderfoot, Tenderlett and Surgicutt incision products are used by professionals to
obtain a patients blood sample for diagnostic testing. The Tenderfoot is a heel stick
used for infant testing, the Tenderlett is used for finger incisions and the Surgicutt is
used to perform screening tests to determine platelet function. All products feature
permanently retracting blades for safe, virtually pain-free incision as compared to
traditional lancets, which puncture the skin.
    Critical Accounting Policies and Estimates
  19




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Revenue Recognition
    Reserves
     Income Taxes
   20




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Evaluation of Purchased Intangibles and Goodwill for Impairment
   Valuation of Share-Based Awards
  21




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Results of Operations
  Three Months EndedMarch 31,
    
    April 1,2007
    
    2006Product sales
    
    
    100
    %
    
    
    100
    %Cost of product sales
    
    
    40
    
    
    
    41Gross profit
    
    
    60
    
    
    
    59Operating expenses:Selling, general and administrative
    
    
    38
    
    
    
    37Research and development
    
    
    19
    
    
    
    20Amortization of purchased intangible assets
    
    
    6
    
    
    
    6Litigation
    
    
    
    
    
    
    Total operating expenses
    
    
    63
    
    
    
    63Loss from operations
    
    
    (3
    )
    
    
    (4
    )Other income and (expense):Interest expense
    
    
    (2
    )
    
    
    (2
    )Interest income and other
    
    
    4
    
    
    
    3loss before income tax benefit (expense)
    
    
    (1
    )
    
    
    (3
    )Income tax benefit (expense)
    
    
    
    
    
    
    1Net loss
    
    
    (1
    )%
    
    
    (2
    )%
   Three months ended March 31, 2007 and April 1, 2006
 Product Sales
  
    
    Cardiovascular product sales increased by $5.7 million. This increase primarily
resulted from higher sales of our HeartMate II product line in the first quarter of 2007 as
compared to the first quarter of 2006. In addition, total product sales increased due to
sales of CentriMag, with no comparative sales in the first quarter of 2006.
    
    Point-of-care diagnostic product sales increased by $2.8 million, due primarily to
increases in sales of our ProTime and Signature Elite products, partially offset by a
decrease in incision and IRMA product sales in the first quarter of 2007 as compared to the
first quarter of 2006. In addition, product sales from the Avox CO-oximetry system also
contributed to the increase in sales in the first quarter of 2007, with no comparative
sales in the first quarter of 2006.
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Gross Profit
  
    
    Cardiovascular gross profit percentage increased by 0.2% partly due improved
manufacturing variances offset by unfavorable product mix.
    
    ITC division gross profit percentage increased by 3.0% due to improved manufacturing
variances and increased instrument upgrade activity coupled with lower average selling
price in incision products.
 Selling, General and Administrative
  
    
    Cardiovascular costs increased by $1.3 million in the first quarter of 2007 as compared
to the first quarter of 2006, primarily due to an increase in personnel costs related to
the expansion of our sales force and marketing development initiatives as we prepare to
launch our HeartMate II product line and related increase in share-based compensation
costs.
    
    ITC costs increased by $0.7 million in the first quarter of 2007 as compared to the
first quarter of 2006, primarily due to higher personnel costs and continued development in
product lines. In addition, the first quarter of 2007 included costs related to the Avox
CO-oximetry product, which were not included in the first quarter of 2006.
    
    Corporate costs increased by $1.9 million because of higher consulting and legal
expenses related to the stock option review we conducted of our stock option granting
practices and higher share-based compensation costs in the first quarter of 2007 as
compared to the first quarter of 2006.
 Research and Development
  Amortization of Purchased Intangible Assets
  Interest Expense
  23




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Interest Income and Other
  Income Taxes
      Liquidity and Capital Resources
   24




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Off Balance Sheet Arrangements
  Contractual Obligations
   
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
 Interest Rate Risk
   Foreign Currency Rate Fluctuations
    25




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ITEM 4. CONTROLS AND PROCEDURES
  Disclosure Controls and Procedures
   Changes to Internal Controls
  Inherent Limitations on Controls and Procedures
  26




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PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  
 ITEM 2: UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS
   Total number
    
    
    Approximateof shares
    
    
    value of sharespurchased
    
    
    authorized to beunder
    
    
    purchased underTotal number
    
    
    
    
    
    
    publicly
    
    
    publiclyof shares
    
    
    Average price
    
    
    announced
    
    
    announcedpurchased (2)
    
    
    paid per share
    
    
    programs (1)
    
    
    programs(in thousands, except per share data)December 31, 2006 through January 27, 2007
    
    
    0.7
    
    
    $
    17.92
    
    
    
    
    
    
    $
    January 28, 2007 through February 24, 2007
    
    
    0.3
    
    
    
    18.47
    
    
    
    
    
    
    
    February 25, 2007 through March 31, 2007
    
    
    31.6
    
    
    
    20.70
    
    
    
    
    
    
    
    Total
    
    
    32.6
    
    
    $
    20.62
    
    
    
    
    
    
    $
    
 
 (1)
    
    Our share repurchase programs, which authorized us to repurchase up to a total of $130
million of the Companys 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
March 31, 2007.(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. 27




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##### Table of Contents



ITEM 6. EXHIBITS
 10.34
    
    Thoratec Corporation Corporate Executive Incentive Plan FY 2007, effective for certain
executive officer of the Company.10.35
    
    Thoratec Corporation Cardiovascular Business Executive Incentive Plan FY 2007,
effective for certain executive officers of the Company.10.36
    
    International Technidyne Corporation Executive Incentive Plan FY 2007, effective for
certain executive officers of the Company.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.
 28




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SIGNATURES
  THORATEC CORPORATIONDate: May 10, 2007
    /s/ Gerhard F. BurbachGerhard F. BurbachChief Executive OfficerDate: May 10, 2007
    /s/ David V. SmithDavid V. SmithChief Financial Officer 29