##### 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 29, 2008
 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
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 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
 TABLE OF CONTENTS
 Part I. Financial Information
    
    
    3Item 1. Condensed Consolidated Financial Statements (unaudited)
    
    
    3Condensed Consolidated Balance Sheets as of March 29, 2008 and December 29, 2007
    
    
    3Condensed Consolidated Statements of Operations for the Three Months Ended March 29, 2008 and March 31, 2007
    
    
    4Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 29, 2008 and March 31, 2007
    
    
    5Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 29, 2008 and March 31, 2007
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    21Item 3. Quantitative and Qualitative Disclosure of Market Risk
    
    
    31Item 4. Controls and Procedures
    
    
    32Part II. Other Information
    
    
    33Item 1A. Risk Factors
    
    
    33Item 2. Unregistered Sale of Equity Securities and Use of Proceeds
    
    
    34Item 6. Exhibits
    
    
    35Signatures
    
    
    36ExhibitsEXHIBIT 10.34EXHIBIT 10.35EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
     2




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PART I. FINANCIAL INFORMATION
 
 ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 THORATEC CORPORATION
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (unaudited)
(in thousands)
 March 29,
    
    
    December 29,2008
    
    
    2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    80,134
    
    
    $
    20,689Short-term available-for-sale investments
    
    
    108,397
    
    
    
    197,661Receivables, net of allowances of $729 and $861, respectively
    
    
    42,091
    
    
    
    45,368Inventories
    
    
    53,312
    
    
    
    54,935Deferred tax asset
    
    
    6,075
    
    
    
    6,077Prepaid expenses and other assets
    
    
    9,125
    
    
    
    6,379Total current assets
    
    
    299,134
    
    
    
    331,109Property, plant and equipment, net
    
    
    46,362
    
    
    
    46,477Goodwill
    
    
    98,368
    
    
    
    98,368Purchased intangible assets, net
    
    
    118,471
    
    
    
    121,767Deferred tax asset
    
    
    1,830
    
    
    
    62Income tax receivable
    
    
    2,806
    
    
    
    2,755Long-term available-for-sale investments
    
    
    32,151
    
    
    
    Other assets
    
    
    12,955
    
    
    
    13,181Total Assets
    
    $
    612,077
    
    
    $
    613,719LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    11,531
    
    
    $
    9,770Accrued compensation
    
    
    10,810
    
    
    
    14,314Accrued income taxes
    
    
    964
    
    
    
    Other accrued liabilities
    
    
    6,094
    
    
    
    5,289Total current liabilities
    
    
    29,399
    
    
    
    29,373Senior subordinated convertible notes
    
    
    143,750
    
    
    
    143,750Long-term deferred tax liability
    
    
    34,712
    
    
    
    35,953Other
    
    
    6,664
    
    
    
    6,614Total Liabilities
    
    
    214,525
    
    
    
    215,690Shareholders equity:Common shares: no par, authorized 100,000; issued and outstanding
54,463 and 52,329 as of March 29, 2008 and December 29, 2007, respectively
    
    
    
    
    
    
    Additional paid-in capital
    
    
    460,576
    
    
    
    458,383Accumulated deficit
    
    
    (61,663
    )
    
    
    (61,577
    )Accumulated other comprehensive income (loss):Unrealized gain (loss) on investments
    
    
    (2,435
    )
    
    
    317Cumulative translation adjustments
    
    
    1,074
    
    
    
    906Total accumulated other comprehensive income (loss)
    
    
    (1,361
    )
    
    
    1,223Total Shareholders Equity
    
    
    397,552
    
    
    
    398,029Total Liabilities and Shareholders Equity
    
    $
    612,077
    
    
    $
    613,719
  3




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THORATEC CORPORATION
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (unaudited)
(in thousands, except per share data)
 Three Months EndedMarch 29,
    
    
    March 31,2008
    
    
    2007Product sales
    
    $
    64,427
    
    
    $
    57,310Cost of product sales
    
    
    28,590
    
    
    
    22,797Gross profit
    
    
    35,837
    
    
    
    34,513Operating expenses:Selling, general and administrative
    
    
    20,636
    
    
    
    21,945Research and development
    
    
    12,519
    
    
    
    10,893Amortization of purchased intangible assets
    
    
    3,296
    
    
    
    3,153Total operating expenses
    
    
    36,451
    
    
    
    35,991Loss from operations
    
    
    (614
    )
    
    
    (1,478
    )Other income and (expense):Interest expense
    
    
    (890
    )
    
    
    (1,068
    )Interest income and other
    
    
    2,178
    
    
    
    2,187Income (loss) before income taxes
    
    
    674
    
    
    
    (359
    )Income tax (expense) benefit
    
    
    (325
    )
    
    
    84Net income (loss)
    
    $
    349
    
    
    $
    (275
    )Net income (loss) per share:Basic
    
    $
    0.01
    
    
    $
    (0.01
    )Diluted
    
    $
    0.01
    
    
    $
    (0.01
    )Shares used to compute net income (loss) per share:Basic
    
    
    54,222
    
    
    
    52,736Diluted
    
    
    54,886
    
    
    
    52,736
  4




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THORATEC CORPORATION
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (unaudited)
(in thousands)
 Three Months EndedMarch 29,
    
    
    March 31,2008
    
    
    2007Cash flows from operating activities:Net income (loss)
    
    $
    349
    
    
    $
    (275
    )Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:Depreciation and amortization
    
    
    5,715
    
    
    
    5,337Investment premium amortization (net)
    
    
    290
    
    
    
    92Non-cash interest and other expenses
    
    
    1,195
    
    
    
    1,212Tax benefit related to stock options
    
    
    
    
    
    
    1,210Share-based compensation expense
    
    
    2,657
    
    
    
    3,503Excess tax benefits from share-based compensation
    
    
    (28
    )
    
    
    (653
    )Change in net deferred tax liability
    
    
    (1,173
    )
    
    
    302Changes in assets and liabilities:Receivables
    
    
    2,607
    
    
    
    187Inventories
    
    
    993
    
    
    
    (8,079
    )Prepaid expenses and other assets
    
    
    (807
    )
    
    
    (1,258
    )Accounts payable and other liabilities
    
    
    (1,829
    )
    
    
    (2,205
    )Accrued income taxes, net
    
    
    (253
    )
    
    
    (3,372
    )Net cash provided by (used in) operating activities
    
    
    9,716
    
    
    
    (3,999
    )Cash flows from investing activities:Purchases of available-for-sale investments
    
    
    (42,120
    )
    
    
    (149,793
    )Sales of available-for-sale investments
    
    
    69,820
    
    
    
    96,335Maturities of available-for-sale investments and restricted investments
    
    
    24,536
    
    
    
    Purchases of property, plant and equipment
    
    
    (1,583
    )
    
    
    (2,018
    )Net cash provided by (used in) investing activities
    
    
    50,653
    
    
    
    (55,476
    )Cash flows from financing activities:Excess
income tax deficit on stock option exercises
    
    
    (180
    )
    
    
    Proceeds from stock option exercises
    
    
    147
    
    
    
    5,400Excess tax benefits from share-based compensation
    
    
    28
    
    
    
    653Repurchase and retirement of common shares
    
    
    (966
    )
    
    
    (671
    )Net cash (used in) provided by financing activities
    
    
    (971
    )
    
    
    5,382Effect of exchange rate changes on cash and cash equivalents
    
    
    47
    
    
    
    (4
    )Net increase (decrease) in cash and cash equivalents
    
    
    59,445
    
    
    
    (54,097
    )Cash and cash equivalents at beginning of period
    
    
    20,689
    
    
    
    67,453Cash and cash equivalents at end of period
    
    $
    80,134
    
    
    $
    13,356Supplemental disclosure of cash flow information:Cash paid for taxes
    
    $
    1,933
    
    
    $
    2,609Supplemental disclosure of non-cash investing and financing activities:Transfers of equipment from inventory
    
    $
    763
    
    
    $
    1,286
  5




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THORATEC CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
 (unaudited)
(in thousands)
 Three Months EndedMarch 29,
    
    
    March 31,2008
    
    
    2007Net income (loss)
    
    $
    349
    
    
    $
    (275
    )Other net comprehensive income (loss):Unrealized loss on investments (net of
taxes of $(1,835) and $(1) for the three
months ended March 29, 2008 and March 31,
2007, respectively)
    
    
    (2,752
    )
    
    
    (1
    )Foreign currency translation adjustments
    
    
    168
    
    
    
    (15
    )Comprehensive loss
    
    $
    (2,235
    )
    
    $
    (291
    )
  6




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THORATEC CORPORATION
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)
 1. Basis of Presentation
   2. Fair Value Measurement
 Fair Value Measurements
 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. The inputs
require significant management judgment or estimation.
 7




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As of March 29, 2008SignificantQuoted prices in
    
    
    other
    
    
    Significantactive markets for
    
    
    observable
    
    
    unobservableidentical assets
    
    
    inputs
    
    
    inputsTotal
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)(in thousands)Short Term AssetsCash and cash equivalents
    
    $
    80,134
    
    
    $
    80,134
    
    
    $
    
    
    
    $
    Municipal bonds
    
    
    99,547
    
    
    
    
    
    
    
    99,547
    
    
    
    Auction rate securities (1)
    
    
    8,850
    
    
    
    8,850
    
    
    
    
    
    
    
    $
    188,531
    
    
    $
    88,984
    
    
    $
    99,547
    
    
    $
    Long Term AssetsAuction rate securities
    
    $
    32,151
    
    
    $
    
    
    
    $
    
    
    
    $
    32,151Other Long Term AssetsConvertible debenture (fair value
for purposes of disclosure in Note 9)
    
    $
    5,000
    
    
    $
    
    
    
    $
    
    
    
    $
    5,000Long Term DebtSenior subordinated convertible notes
(fair value for purposes of disclosure in Note 11)
    
    $
    140,118
    
    
    $
    140,118
    
    
    $
    
    
    
    $
    
 
 (1)
    
    Auction rate securities were classified using a Level 1 input, because they were called in
April 2008 for redemption at 100% of par value.  a.
    
    Fair value of the make-whole provision accounted for under SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities,using Level 3 inputs, referred to in Note 11.b.
    
    Fair value of the of the foreign currency contracts under
SFAS No. 133 using Level 2 inputs, referred to in Note 6.
   Auction Rate
    
    
    Other LongSecurities
    
    
    Term AssetsBalance at December 29, 2007
    
    $
    
    
    
    $
    5,000Transfer to Level 3
    
    
    46,050
    
    
    
    Unrealized holding loss, included in other comprehensive loss
    
    
    (5,049
    )
    
    
    Transfer to Level 1
    
    
    (8,850
    )
    
    
    Balance at March 29, 2008
    
    $
    32,151
    
    
    $
    5,000
  8




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3. Investments in Available-for-Sale Securities
     4. Recently Issued and Proposed Accounting Pronouncements
 Disclosures about Derivative Instruments and Hedging Activities
 Effective Date of FASB Statement No. 157
 Business Combinations
 9




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Accounting For Convertible Debt Instruments That May Be Settled in
Cash Upon Conversion (Including Partial Cash Settlement)
 Accounting for Nonrefundable Advance Payments for Goods or Services to Be Used
in Future Research and Development Activities
 The Fair Value Option for Financial Assets and
Financial Liabilities
 5. Cash and cash equivalents
  6. Financial Instruments
    10




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Three Months EndedMarch 29,
    
    
    March 31,2008
    
    
    2007(in thousands)Foreign currency exchange losses on foreign currency contracts
    
    $
    1,040
    
    
    $
    83Foreign currency exchange gains on foreign translation adjustments
    
    
    1,108
    
    
    
    56
  
 7. Inventories
  As ofMarch 29,
    
    
    December 29,2008
    
    
    2007(in thousands)Finished goods
    
    $
    17,815
    
    
    $
    20,732Work in process
    
    
    13,190
    
    
    
    10,053Raw materials
    
    
    22,307
    
    
    
    24,150Total
    
    $
    53,312
    
    
    $
    54,935
 8. Property, Plant and Equipment, net
  As ofMarch 29,
    
    
    December 29,2008
    
    
    2007(in thousands)Land, building and improvements
    
    $
    16,135
    
    
    $
    16,135Equipment and capitalized software
    
    
    64,032
    
    
    
    61,886Furniture and leasehold improvements
    
    
    23,003
    
    
    
    22,804Total
    
    
    103,170
    
    
    
    100,825Less accumulated depreciation
    
    
    (56,808
    )
    
    
    (54,348
    )$
    46,362
    
    
    $
    46,477
  11




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9. Other Assets
   10. Goodwill and Purchased Intangible Assets
   As of March 29, 2008Gross
    
    
    
    
    
    
    NetCarrying
    
    
    Accumulated
    
    
    CarryingAmount
    
    
    Amortization
    
    
    Amount(in thousands)Patents and trademarks
    
    $
    38,515
    
    
    $
    (26,016
    )
    
    $
    12,499Core technology
    
    
    37,485
    
    
    
    (12,286
    )
    
    
    25,199Developed technology
    
    
    125,742
    
    
    
    (45,585
    )
    
    
    80,157Customer and distributor relationships and other
    
    
    897
    
    
    
    (281
    )
    
    
    616Total purchased intangible assets
    
    $
    202,639
    
    
    $
    (84,168
    )
    
    $
    118,471
 As of December 29, 2007Gross
    
    
    
    
    
    
    NetCarrying
    
    
    Accumulated
    
    
    CarryingAmount
    
    
    Amortization
    
    
    Amount(in thousands)Patents and trademarks
    
    $
    38,515
    
    
    $
    (25,086
    )
    
    $
    13,429Core technology
    
    
    37,485
    
    
    
    (11,793
    )
    
    
    25,692Developed technology
    
    
    125,742
    
    
    
    (43,748
    )
    
    
    81,994Customer and distributor relationships and other
    
    
    897
    
    
    
    (245
    )
    
    
    652Total purchased intangible assets
    
    $
    202,639
    
    
    $
    (80,872
    )
    
    $
    121,767
  12




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11. Long-Term Debt
         13




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12. Share-Based Compensation
   Three Months EndedMarch 29,
    
    
    March 31,2008
    
    
    2007(in thousands)Cost of Goods Sold
    
    $
    339
    
    
    $
    356Selling, general and administrative
    
    
    1,674
    
    
    
    2,348Research and development
    
    
    747
    
    
    
    798$
    2,760
    
    
    $
    3,502
  Share-Based Payment
  Equity Plan
  Stock Options
  14




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Three Months EndedMarch 29, 2008
    
    
    March 31, 2007Risk-free interest rate
    
    
    3.25%
    
    
    
    4.82%Expected volatility
    
    
    40%
    
    
    
    40%Expected option life
    
    
    5.09 to 6.07 years
    
    
    
    5.10 to 6.06 yearsDividends
    
    
    None
    
    
    
    None
   Number of
    
    
    Weighted
    
    
    Weighted AverageOptions
    
    
    Average Exercise
    
    
    Remaining Contract(in thousands)
    
    
    Price Per Share
    
    
    Life (years)Outstanding options at December 29, 2007
    
    
    5,748
    
    
    $
    15.46
    
    
    
    6.19Granted
    
    
    377
    
    
    
    14.96Exercised
    
    
    (16
    )
    
    
    9.56Forfeited or expired
    
    
    (38
    )
    
    
    18.17Outstanding options at March 29, 2008
    
    
    6,071
    
    
    $
    15.42
    
    
    
    6.15Outstanding options exercisable at March 29, 2008
    
    
    4,385
    
    
    $
    14.38
    
    
    
    5.26Outstanding options exercisable and expected to be exercisable
at March 29, 2008
    
    
    5,831
    
    
    $
    15.32
    
    
    
    6.04
 Restricted Stock
    Number of
    
    
    Weighted AverageShares
    
    
    Grant Date Fair(in thousands)
    
    
    ValueOutstanding unvested restricted stock at December 29, 2007
    
    
    768
    
    
    $
    18.29Granted
    
    
    415
    
    
    
    14.90Vested
    
    
    (167
    )
    
    
    18.35Forfeited or expired
    
    
    (17
    )
    
    
    18.47Outstanding unvested restricted stock at March 29, 2008
    
    
    999
    
    
    $
    16.87
 15




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Restricted Stock Units
   Number of
    
    
    Weighted Average
    
    
    Weighted AverageUnits
    
    
    Grant Date Fair
    
    
    Remaining Contract(in thousands)
    
    
    Value
    
    
    (in years)Outstanding units at December 29, 2007
    
    
    21
    
    
    $
    18.58
    
    
    
    2.82Granted
    
    
    14
    
    
    
    14.81Released
    
    
    (5
    )
    
    
    18.92Forfeited or expired
    
    
    
    
    
    
    Outstanding units at March 29, 2008
    
    
    30
    
    
    $
    16.75
    
    
    
    2.02
 Employee Stock Purchase Plan
   Risk-free interest rate
    
    
    3.95
    %Expected volatility
    
    
    40
    %Expected option life
    
    0.50 yearsDividends
    
    None
  16




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13. Income Taxes
  Accounting for Uncertainty in Income Taxes,
an interpretation of SFAS No. 109
    17




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##### Table of Contents



14. Net Income (Loss) Per Share
  Three Months EndedMarch 29,
    
    
    March 31,2008
    
    
    2007(in thousands, except per share data)Net income (loss)
    
    $
    349
    
    
    $
    (275
    )Weighted average number of common shares-basic
    
    
    54,222
    
    
    
    52,736Dilutive effect of stock options and Employee Stock Purchase Plan shares
    
    
    664
    
    
    
    Weighted average number of common equivalent shares-diluted
    
    
    54,886
    
    
    
    52,736Net income (loss) per common share:Basic
    
    $
    0.01
    
    
    $
    (0.01
    )Diluted
    
    $
    0.01
    
    
    $
    (0.01
    )
  Three Months EndedMarch 29,
    
    
    March 31,2008
    
    
    2007(in thousands)Options to purchase shares not included
in the computation of diluted income
(loss) per share because their
inclusion would be antidilutive
    
    
    3,067
    
    
    
    1,890
   18




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15. Business Segment and Geographical Data
   Three Months EndedMarch 29,
    
    
    March 31,2008
    
    
    2007(in thousands)Product sales:Cardiovascular
    
    $
    40,221
    
    
    $
    35,538ITC
    
    
    24,206
    
    
    
    21,772Total product sales
    
    $
    64,427
    
    
    $
    57,310Income(loss) before income taxes:Cardiovascular (a)(c)
    
    $
    1,826
    
    
    $
    1,127ITC(a)(c)
    
    
    805
    
    
    
    1,398Corporate (b)(c)
    
    
    (3,245
    )
    
    
    (4,003
    )Total operating loss
    
    
    (614
    )
    
    
    (1,478
    )Other income and (expense):Interest expense
    
    
    (890
    )
    
    
    (1,068
    )Interest income and other
    
    
    2,178
    
    
    
    2,187Income (loss) before income tax benefit
    
    $
    674
    
    
    $
    (359
    )
 As ofMarch 29,
    
    
    December 29,2008
    
    
    2007(in thousands)Total assets:Cardiovascular
    
    $
    307,217
    
    
    $
    312,691ITC
    
    
    61,995
    
    
    
    62,642Corporate (b)
    
    
    242,865
    
    
    
    238,386Total assets
    
    $
    612,077
    
    
    $
    613,719
 
 (a)
    
    Includes amortization expense of $3.1 million for the three months ended March 29, 2008 and
$2.9 million for the three months ended March 31, 2007, related to the Cardiovascular segment.
The ITC segment also includes amortization expense of $0.2 million for each of the three
months ended March 29, 2008 and March 31, 2007.(b)
    
    Represents unallocated costs or assets, not specifically identified to any particular
business segment.(c)
    
    Includes share-based compensation expense of $1.3 million, $0.8 million and $0.8 million for
Cardiovascular, ITC and Corporate, respectively, for the three months ended March 29, 2008 and
$1.3 million, $0.8 million and $1.3 million for Cardiovascular, ITC and Corporate,
respectively, for the three months ended March 31, 2007. 19




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Three Months EndedMarch 29,
    
    
    March 31,2008
    
    
    2007(in thousands)Domestic
    
    $
    45,374
    
    
    $
    43,678International
    
    
    19,053
    
    
    
    13,632Total product sales
    
    $
    64,427
    
    
    $
    57,310
 20




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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 2007 Annual Report on Form 10-K (the 2007 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 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 condensed consolidated financial
statements included in this Quarterly Report on Form 10-Q .
 OVERVIEW
     21




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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
   22




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##### Table of Contents



The Implantable Ventricular Assist Device
   The HeartMate XVE
   The HeartMate II
  The CentriMag
  Vascular Graft Products
 Vectra
 23




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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
   Incision Products
   24




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Critical Accounting Policies and Estimates
  Revenue Recognition
    Reserves
    25




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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
 26




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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. We used Level I assumptions for our cash and cash equivalents, for auction rate
securities called at par in April, 2008 and for straight convertible debt feature of our
senior subordinated convertible debt notes, except for the make-whole provision using a
Level 3 input, described below. 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 include primarily
municipal bonds.
    
    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. Our estimates are subject to
significant judgment by management
   27




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##### Table of Contents



Results of Operations
  Three Months EndedMarch 29,
    
    
    March 31,2008
    
    
    2007Product sales
    
    
    100
    %
    
    
    100
    %Cost of product sales
    
    
    44
    
    
    
    40Gross profit
    
    
    56
    
    
    
    60Operating expenses:Selling, general and administrative
    
    
    32
    
    
    
    38Research and development
    
    
    19
    
    
    
    19Amortization of purchased intangible assets
    
    
    6
    
    
    
    6Total operating expenses
    
    
    57
    
    
    
    63Loss from operations
    
    
    (1
    )
    
    
    (3
    )Other income and (expense):Interest expense
    
    
    (1
    )
    
    
    (2
    )Interest income and other
    
    
    3
    
    
    
    4loss before income tax benefit (expense)
    
    
    1
    
    
    
    (1
    )Income tax benefit (expense)
    
    
    (1
    )
    
    
    Net income (loss)
    
    
    
    %
    
    
    (1
    )%
  Three months ended March 29, 2008 and March 31, 2007
 Product Sales
  
    
    Cardiovascular product sales increased by $4.7 million primarily due to higher sales of
our HeartMate product line, partially offset by the decline in the Thoratec product line as
we continue to see an increased usage in short-term devices.
    
    ITC product sales increased by $2.4 million, due primarily to higher international sales
of our alternate site products and HEMOCHRON product line.
  Gross Profit
  
    
    Cardiovascular gross margin percentage decreased by 5.1% primarily due to fluctuations in
capitalized manufacturing variances and unfavorable pump to non-pump product mix, partially
offset by favorable foreign currency translations.
    
    ITC division gross margin percentage decreased by 4.1% due to geographic mix during the
first quarter of 2008 and a reduction of instrument upgrade activity in comparison to the
first quarter of 2007.
 28




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Selling, General and Administrative
  
    
    Cardiovascular costs remained the same in both of the first quarters of 2008 and 2007. During the first quarter of 2008 as compared to the first
quarter of 2007, share-based compensation costs and consulting expenses decreased, offset by an increase in commission expense related to higher
volume and market development initiatives.
    
    ITC costs increased by $0.3 million in the first quarter of 2008 as compared to the first
quarter of 2007, primarily due to higher commission expense related to volume increases.
    
    Corporate costs decreased by $1.6 million due to the first quarter of 2007 legal and
consulting fees related to stock option review that did not recur in the first quarter of
2008, offset by higher share-based compensation expense during the first quarter of 2008.
 Research and Development
  Amortization of Purchased Intangible Assets
  Interest Expense
  Interest Income and Other
  29




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Income Taxes
 Accounting for Uncertainty in Income
Taxes, an interpretation of SFAS No. 109
  Liquidity and Capital Resources
       30




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Auction RateSecuritiesBalance at December 29, 2007
    
    $
    Transfer to Level 3
    
    
    46,050Unrealized holding loss, included in other comprehensive loss
    
    
    (5,049
    )Transfer to Level 1
    
    
    (8,850
    )Balance at March 29, 2008
    
    $
    32,151
   Off Balance Sheet Arrangements
  Contractual Obligations
   
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
 Interest Rate Risk
   31




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Foreign Currency Rate Fluctuations
   Accounting for
Derivative Instrument and Hedging Activities
 Three Months EndedMarch 29,
    
    March 31,2008
    
    2007(in thousands)Foreign currency exchange losses on foreign currency contracts
    
    $
    1,040
    
    
    $
    83Foreign currency exchange gains on foreign translation adjustments
    
    
    1,108
    
    
    
    56
  
 
 ITEM 4. CONTROLS AND PROCEDURES
  Disclosure Controls and Procedures
  32




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Changes to Internal Controls
  Inherent Limitations on Controls and Procedures
   
 PART II. OTHER INFORMATION
 
 ITEM 1A. RISK FACTORS
  33




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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)December 30, 2007 through January 26, 2008
    
    
    4.7
    
    
    $
    18.31
    
    
    
    
    
    
    $
    January 27, 2008 through February 23, 2008
    
    
    33.6
    
    
    
    15.21
    
    
    
    
    
    
    
    February 24, 2008 through March 29, 2008
    
    
    24.7
    
    
    
    14.99
    
    
    
    
    
    
    
    Total
    
    
    63.0
    
    
    $
    15.36
    
    
    
    
    
    
    $
    
 
 (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 29, 2008.(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. 34




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ITEM 6. EXHIBITS
 10.34
    
    Thoratec Corporation Corporate Executive Incentive Plan FY 2008,
effective for certain executive officer of the Company.10.35
    
    International Technidyne Corporation Executive Incentive Plan FY
2008, 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.
 35




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SIGNATURES
  THORATEC CORPORATIONDate: May 8, 2008
    /s/ Gerhard F. BurbachGerhard F. BurbachChief Executive OfficerDate: May 8, 2008
    /s/ David V. SmithDavid V. SmithChief Financial Officer 36