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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-K
 (Mark one)
 þ
    
    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended January 3, 2009
 o
    
    TRANSITION REPORT UNDER 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
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)6035 Stoneridge Drive, Pleasanton, California
    
    94588(Address of Principal Executive Offices)
    
    (Zip Code)
 Registrants telephone number, including area code: (925) 847-8600
Securities registered pursuant to Section 12(b) of the Exchange Act:
 Title of Each Class
    
    Name of Each Exchange of which RegisteredCommon Stock, no par value per share
    
    NASDAQ Global Select Market
 Securities registered pursuant to Section 12(g) of the Exchange Act: None
 þ o
 Yes
o No
þ
 þ o
 þ
  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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##### 



TABLE OF CONTENTS
 PagePART IItem 1. Business
    
    
    3Item 1A. Risk Factors
    
    
    15Item 1B. Unresolved Staff Comments
    
    
    26Item 2. Properties
    
    
    27Item 3. Legal Proceedings
    
    
    27Item 4. Submission of Matters to a Vote of Security Holders
    
    
    27PART IIItem 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
    
    
    29Item 6. Selected Consolidated Financial Data
    
    
    32Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    33Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    45Item 8. Financial Statements and Supplementary Data
    
    
    47Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
    
    
    80Item 9A. Controls and Procedures
    
    
    80Item 9B. Other Information
    
    
    82PART IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    
    82Item 11. Executive Compensation
    
    
    82Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    82Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    82Item 14. Principal Accounting Fees and Services
    
    
    82PART IVItem 15. Exhibits, Financial Statement Schedules
    
    
    83Exhibit Index
    
    
    85EX-10.25EX-10.26EX-23.1EX-31.1EX-31.2EX-32.1EX-32.2
  DOCUMENTS INCORPORATED BY REFERENCE
     2




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PART I
 
 BUSINESS
 OVERVIEW
   OUR PRODUCTS
 Cardiovascular Division
     The Paracorporeal Ventricular Assist Device
   3




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The Implantable Ventricular Assist Device
   The HeartMate XVE
   The HeartMate II
  The CentriMag
  4




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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
  5




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Incision Products
   PRODUCT SEGMENTS
  OUR MARKETS
 Cardiovascular Division
     6




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Bridge-to-Transplantation
  Destination Therapy
  Post-Cardiotomy Myocardial Recovery Following Cardiac Surgery
  Cardiac Surgery Support
  ITC Division
 Point-of-Care Diagnostics Products
  Incision Products
  7




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OUR STRATEGY
  Offer a broad range of products.
 Focus on and partner with leading heart centers
 Expand
the use of VADs in existing segments
 
    
    Destination Therapy segment. In April 2003, we received approval to market the HeartMate
XVE for Destination Therapy in the treatment of late-stage HF patients who are not
candidates for heart transplants. While the initial Centers for Medicare and Medicaid
Services (CMS) reimbursement approval is limited to sixty-seven centers, we estimate the
market penetration for this indication could eventually comprise a meaningful portion of the
100,000 patients diagnosed with late-stage HF, as we introduce new technologies that
increase the useful life of our VADs and improve clinical outcomes.
 Increase
our presence in Cardiovascular and ITC segments
 
    
    Acute HF segment.In August 2006, we entered into a distribution agreement with Levitronix
to distribute the CentriMag in the U.S. This agreement allows us to expand more broadly
beyond transplant centers and enables us to better address opportunities in short-term
patient recovery.
    
    Point-of-Care segment. In October 2006, we acquired A-VOX Systems, Inc. (Avox), a
point-of-care company that developed and manufactured portable, bedside AVOXimeter systems
to assist clinicians in assessing a patients oxygenation status. We sell these systems
along with our HEMOCHRON and IRMA point-of-care products and our data management system that
connects all of these systems together.
    
    Chronic HF segment.In December 2007, we made a nominal investment in Acorn
Cardiovascular, Inc., a medical device company that has intellectual property rights to the
CorCapTM Cardiac Support Device (CSD), to support patients with heart failure. The CorCap
CSD is a mesh wrap that is placed around the heart to support and relieve stress on the
heart muscle. The CorCap CSD is intended to improve the hearts size, shape and function.
The CorCap CSD received CE Mark in Europe and is in clinical trials in the United States.In February 2009, we announced that we entered into a definitive
merger agreement to acquire
HeartWare International Inc.  (HeartWare). The transaction is subject
to approval of HeartWares
stockholders and satisfaction of other customary closing conditions,
including regulatory clearance.
If the transaction is completed, we believe that it will enable us to build upon our mechanical
support technologies, giving better options to a broader heart failure patient population.
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Obtain approval for new products.
  Develop new products.
 Increase cost effectiveness of the therapies that employ our products
 SALES AND MARKETING
 Mechanical Circulatory Support Products
     9




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Vascular Graft Products
  Point-of-Care Diagnostics
  Incision Products
  COMPETITION
    
    
    New competitors might enter the market with broader test menus. To address this risk, in
the fourth quarter of 2006, we acquired Avox, which increased our test menu offering, and
has also offered us the opportunity to develop the next generation system that combines
blood gas, electrolyte and oxygenation testing in one machine.
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
    
    New drug therapies under development may not require the intense monitoring of a
patients coagulation necessary with the current anticoagulation drug of choice, Heparin. To
try to mitigate this risk, we participate in clinical trials with key pharmaceutical
companies to provide the hemostasis monitoring that will ultimately be required for new drug
therapies.
 PATENTS AND PROPRIETARY RIGHTS
      Our inability to protect our proprietary technologies or an infringement of others
patents could harm our competitive position
  11




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GOVERNMENT REGULATIONS
  U.S. Regulations
       12




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International Regulations
   Other Regulations
  THIRD PARTY REIMBURSEMENT AND COST CONTAINMENT
   13




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MANUFACTURING
        14




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RESEARCH AND DEVELOPMENT
  MAJOR CUSTOMERS AND FOREIGN SALES
   EMPLOYEES
  ADDITIONAL INFORMATION
  
 Item 1A. Risk Factors
 Our businesses face many risks. The risks described below are what we believe to be the
material risks facing our company, however, they may not be the only risks we face. Additional
risks that we do not yet know of or that we currently believe are immaterial may also impair our
business operations. If any of the events or circumstances described in the following risk factors
actually occur, our business, financial condition or results of operations could suffer, and the
trading price of our common stock could decline significantly. Investors should consider the
following risks, as well as the other information included in this Annual Report on Form 10-K , and
other documents we file from time to time with the SEC, such as our quarterly reports on Form 10-Q ,
our current reports on Form 8-K and any public announcements we make from time to time.
 If we fail to obtain approval from the FDA and from foreign regulatory authorities, we cannot
market and sell our products under development in the U.S. and in other countries, and if we fail
to comply with government regulations, including FDA Quality System Regulations, or our products
experience certain adverse events, the FDA or foreign regulatory authorities may withdraw our
market clearance or take other enforcement action.
  15




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If hospitals do not conduct Destination Therapy procedures using our VADs, market opportunities for
our product will be diminished.
   
    
    the number of CMS sites approved for Destination Therapy;
    
    the clinical outcomes of Destination Therapy procedures;
    
    cardiologists and referring physicians education regarding, and their commitment to,
Destination Therapy;
 16




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
    
    the economics of the Destination Therapy procedure for individual hospitals, which
include the costs of the VAD and related pre- and post-operative procedures and their
reimbursement;
    
    the impact of changes in reimbursement rates on the timing of purchases of VADs for
Destination Therapy; and
    
    the economics for individual hospitals of not conducting a Destination Therapy
procedure, including the costs and related reimbursements of long-term hospitalization.
  Physicians may not accept or continue to accept our current products and products under
development.
  We rely on specialized suppliers for certain components and materials in our products and
alternative suppliers may not be available.
     
    
    pay premium prices to our suppliers to keep their production lines open or to obtain
alternative suppliers;
    
    buy substantial inventory to last through the scheduled end of life of our product, or
through such time that we will have a replacement product developed and approved by the FDA;
or
    
    stop shipping the product in which the legacy component is used once our inventory of the
discontinued component is exhausted.
  17




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We may encounter problems manufacturing our products.
  Identified quality problems can result in substantial costs and write-downs.
    If we fail to successfully introduce new products, our future growth may suffer.
  Our inability to protect our proprietary technologies or an infringement of others patents could
harm our competitive position.
    18




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Our future disposable cuvette test product sales by ITC could be affected by changes in monitoring
requirements for medical procedures.
  Since we depend upon distributors, if we lose a distributor or a distributor fails to perform, our
operations may be harmed.
   If we fail to compete successfully against our existing or potential competitors, our product sales
or operating results may be harmed.
   
    
    develop products;
    
    complete clinical testing;
    
    receive regulatory approvals;
    
    achieve market acceptance; and
    
    manufacture and sell commercial quantities of products.
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
    
    New drug therapies under development may not require the intense monitoring of a
patients coagulation that the current anti-coagulation drug of choice (Heparin) requires.
    
    New competitors might enter the market with broader test menus.
  Our non-U.S. sales present special risks.
  
    
    we sell some of our products at a lower price outside the U.S.;
    
    sales agreements with foreign customers may be difficult to enforce;
    
    receivables may be difficult to collect through a foreign countrys legal system;
    
    foreign customers may have longer payment cycles;
    
    foreign countries may impose additional withholding taxes or otherwise tax our foreign
income, impose tariffs or adopt other restrictions on foreign trade;
    
    U.S. export licenses may be difficult to obtain;
    
    intellectual property rights may be (and often are) more difficult to enforce in foreign
countries;
    
    terrorist activity or war may interrupt distribution channels or adversely impact our
customers or employees; and
    
    fluctuations in exchange rates may affect product demand and adversely affect the
profitability, in U.S. dollars, of products sold in foreign markets where payments are made
in local currencies.
  Fluctuations in foreign currency exchange rates could result in declines in our reported sales and
earnings.
  20




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The long and variable sales and deployment cycles for our VAD systems may cause our product sales
and operating results to vary significantly, which increases the risk of an operating loss for any
given fiscal period.
  Since our physician and hospital customers depend on third party reimbursement, if third party
payors fail to provide appropriate levels of reimbursement for our products, our results of
operations will be harmed.
   Our debt obligations expose us to risks that could adversely affect our business, operating results
and financial condition.
  
    
    make it difficult for us to make payments on our debt;
    
    make it difficult for us to obtain any necessary financing in the future for working
capital, capital expenditures, debt service, acquisitions or general corporate purposes;
    
    limit our flexibility in planning for or reacting to changes in our business;
    
    reduce funds available for use in our operations;
    
    make us more vulnerable in the event of a downturn in our business or an increase in
interest rates;
    
    impair our ability to incur additional debt because of financial and other restrictive
covenants proposed for any such additional debt; or
    
    place us at a possible competitive disadvantage relative to less leveraged competitors
and competitors that have better access to capital resources.
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We may be unable to repay or repurchase our senior subordinated convertible notes or our other
indebtedness.
  Conversion of the senior subordinated convertible notes or other future issuances of our stock will
dilute the ownership interests of existing shareholders.
  Amortization of our intangible assets, which represent a significant portion of our total assets,
will adversely affect our net income and we may never realize the full value of our intangible
assets.
  Product liability claims could damage our reputation and hurt our financial results.
  22




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The competition for qualified personnel is particularly intense in our industry. If we are unable
to retain or hire key personnel, we may not be able to sustain or grow our business.
  The price of our common stock may fluctuate significantly.
  
    
    future announcements concerning us or our competitors;
    
    regulatory developments, enforcement actions bearing on advertising, marketing or sales,
and disclosure regarding completed ongoing or future clinical trials;
    
    quarterly variations in operating results, which we have experienced in the past and
expect to experience in the future;
    
    introduction of new products or changes in product pricing policies by us or our
competitors;
    
    acquisition or loss of significant customers, distributors or suppliers;
    
    reaction to estimates of business operations, product development or financial
performance made public by our management;
    
    business acquisitions or divestitures;
    
    changes in earnings estimates by analysts;
    
    changes in third party reimbursement practices;
    
    charges, amortization and other financial effects relating to our business; and
    
    fluctuations in the economy, world political events or general market conditions, such as
the current economic recession.
   23




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Current global economic conditions could harm our business and liquidity.
  If we make acquisitions or divestitures, we could encounter difficulties that harm our business.
  The occurrence of a catastrophic disaster or other similar events could cause damage to our
facilities and equipment, which would require us to cease or curtail operations.
  We have a history of net losses.
  We have experienced rapid growth and changes in our business, and our failure to manage this and
any future growth could harm our business.
  24




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Revisions to accounting standards, financial reporting and corporate governance requirements and
tax laws could result in changes to our standard practices and could require a significant
expenditure of time, attention and resources, especially by senior management.
   
    
    accounting for stock-based compensation;
    
    fair value measurement (including convertible debt instruments);
    
    accounting for income taxes; and
    
    accounting for business combinations and related goodwill.
 Accounting For Convertible Debt Instruments That May Be
Settled in Cash Upon Conversion (Including Partial Cash Settlement),
 We are subject to taxation in a number of jurisdictions and changes to the corporate tax rate and
laws of any of these jurisdictions could increase the amount of corporate taxes we have to pay.
    25




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Any claims relating to improper handling, storage or disposal of hazardous chemicals and
biomaterials could be time consuming and costly.
   Anti-takeover defenses in our governing documents could prevent an acquisition of our company or
limit the price that investors might be willing to pay for our common stock.
  
    
    Our Articles of Incorporation allow our Board of Directors to issue, at any time and
without shareholder approval, preferred stock with such terms as it may determine. No shares
of preferred stock are currently outstanding. However, the rights of holders of any of our
preferred stock that may be issued in the future may be superior to the rights of holders of
our common stock.
    
    We have a shareholder rights plan, commonly known as a poison pill, which would make it
difficult for someone to acquire us without the approval of our Board of Directors.
  
 Item 1B. Unresolved Staff Comments
  26




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Item 2. Properties
   
    
    Approximately 62,000 square feet of office, manufacturing and research facilities in
Pleasanton, California, expiring in 2012.
    
    Approximately 6,400 square feet of warehouse space in Dublin, California, expiring in
2011.
    
    Approximately 11,000 square feet of office and research facilities in Rancho Cordova,
California, expiring in 2012.
    
    Approximately 45,000 square feet of office, manufacturing, warehouse and research
facilities in Edison, New Jersey, expiring through 2017.
    
    Approximately 53,500 square feet of office and research facilities in Piscataway, New
Jersey, expiring in 2014.
    
    Approximately 35,000 square feet of office, manufacturing and research facilities in
Roseville, Minnesota, expiring in 2013.
    
    Approximately 39,000 square feet of office and research facilities in Burlington,
Massachusetts, expiring in 2011.
    
    Approximately 8,700 square feet of office and warehouse facilities in the United Kingdom
expiring in 2022.
   
 Item 3. Legal Proceedings
  
 Item 4. Submission of Matters to a Vote of Security Holders
  27




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Our Executive Officers
 Gerhard F. Burbach, 46 President, Chief Executive Officer and Director,
 David V. Smith, 49, Executive Vice President and Chief Financial Officer,
 Lawrence Cohen, 59, President of ITC,
 David A. Lehman, 48, Senior Vice President, General Counsel and Secretary
 28




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PART II
 
 Item 5. Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
  High
    
    LowFiscal Year 2007First Quarter
    
    $
    21.17
    
    
    $
    17.44Second Quarter
    
    
    21.68
    
    
    
    17.36Third Quarter
    
    
    21.02
    
    
    
    18.67Fourth Quarter
    
    
    21.25
    
    
    
    17.60Fiscal Year 2008First Quarter
    
    $
    18.44
    
    
    $
    13.09Second Quarter
    
    
    18.50
    
    
    
    14.08Third Quarter
    
    
    28.87
    
    
    
    16.67Fourth Quarter
    
    
    32.49
    
    
    
    19.48
   29




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Stock Price Performance Graph
   
  
 
 *
    
    $100 invested on December 31, 2003 in stock or index-including reinvestment of dividends. 12/03
    
    
    12/04
    
    
    12/05
    
    
    12/06
    
    
    12/07
    
    
    12/08Thoratec Corporation
    
    
    
    100.00
    
    
    
    
    80.59
    
    
    
    
    160.02
    
    
    
    
    135.96
    
    
    
    
    140.68
    
    
    
    
    251.28NASDAQ Composite
    
    
    
    100.00
    
    
    
    
    110.08
    
    
    
    
    112.88
    
    
    
    
    126.51
    
    
    
    
    138.13
    
    
    
    
    80.47NASDAQ Medical Equipment
    
    
    
    100.00
    
    
    
    
    120.01
    
    
    
    
    136.96
    
    
    
    
    142.08
    
    
    
    
    181.26
    
    
    
    
    99.84
 30




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Issuer Purchases of Equity Securities
  Total numberof shares
    
    
    Approximate dollarpurchased
    
    
    value of sharesas part of
    
    
    that may yet beTotal number
    
    
    
    
    
    
    publicly
    
    
    purchased underof shares
    
    
    Average price
    
    
    announced plans or
    
    
    the plans orpurchased
    
    
    paid per share
    
    
    programs (1)
    
    
    programs(in thousands, except per share data)September 28, 2008 through October 25, 2008
    
    
    2.0
    
    
    $
    25.55
    
    
    
    
    
    
    $
    October 26, 2008 through November 22, 2008
    
    
    2.6
    
    
    
    21.86
    
    
    
    
    
    
    
    November 23, 2008 through January 3, 2009
    
    
    4.0
    
    
    
    29.80
    
    
    
    
    
    
    
    Total
    
    
    8.6
    (2)
    
    $
    26.37
    
    
    
    
    
    
    $
    
 
 (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
January 3, 2009. As of January 3, 2009, we have $10.1 million remaining on 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. 31




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Item 6. Selected Consolidated Financial Data
   Fiscal Year2008(1)
    
    2007(1)
    
    2006(1)
    
    2005
    
    2004(In thousands, except per share data)Statement of Operations:Product sales
    
    $
    313,564
    
    
    $
    234,780
    
    
    $
    214,133
    
    
    $
    201,712
    
    
    $
    172,341Gross profit
    
    
    185,998
    
    
    
    136,264
    
    
    
    125,485
    
    
    
    123,340
    
    
    
    100,222Amortization of goodwill and purchased intangible assets
    
    
    13,183
    
    
    
    12,582
    
    
    
    12,055
    
    
    
    11,204
    
    
    
    11,724In-process research and development
    
    
    
    
    
    
    
    
    
    
    1,120
    
    
    
    
    
    
    
    Litigation, merger, restructuring and other costs
    
    
    
    
    
    
    
    
    
    
    447
    
    
    
    95
    
    
    
    733Net income
    
    $
    22,532
    
    
    $
    3,235
    
    
    $
    3,973
    
    
    $
    13,198
    
    
    $
    3,564Basic net income per share
    
    $
    0.41
    
    
    $
    0.06
    
    
    $
    0.08
    
    
    $
    0.27
    
    
    $
    0.07Diluted net income per share
    
    $
    0.39
    
    
    $
    0.06
    
    
    $
    0.07
    
    
    $
    0.26
    
    
    $
    0.07Balance Sheet Data:Cash and cash equivalents and short term
available-for-sale investments
    
    $
    248,651
    
    
    $
    218,350
    
    
    $
    194,478
    
    
    $
    210,936
    
    
    $
    145,859Working capital
    
    
    332,378
    
    
    
    301,736
    
    
    
    265,691
    
    
    
    269,293
    
    
    
    206,250Total assets
    
    
    684,584
    
    
    
    613,719
    
    
    
    591,135
    
    
    
    573,918
    
    
    
    518,034Subordinated convertible debentures
    
    
    143,750
    
    
    
    143,750
    
    
    
    143,750
    
    
    
    143,750
    
    
    
    143,750Long-term deferred tax liability (2)
    
    
    31,285
    
    
    
    35,953
    
    
    
    46,421
    
    
    
    48,765
    
    
    
    62,016Total shareholders equity (2)
    
    $
    454,700
    
    
    $
    398,029
    
    
    $
    365,073
    
    
    $
    348,147
    
    
    $
    292,108
 
 (1)
    
    On January 1, 2006, we adopted Statement of Financial Accounting Standards (SFAS) No. 123
(R) and included share-based compensation for employee stock-based awards in our results of
operations.(2)
    
    On December 31, 2006, we adopted Financial Accounting Standards Board (FASB) Interpretation
No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, an interpretation of SFAS No.
109and as a result we reported a cumulative effect adjustment of $0.5 million, which
increased our December 31, 2006 Accumulated deficit
balance offset by a Long-term deferred tax
liability balance. 32




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Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
  The following presentation of managements discussion and analysis of our financial condition
and results of operations should be read together with our consolidated financial statements
included elsewhere in this Annual Report on Form 10-K .
 Overview
  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.
 33




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Critical Accounting Policies and Estimates
  Revenue Recognition
    Reserves
   Balance
    
    Charges to
    
    
    
    
    
    BalanceBeginning
    
    Costs and
    
    Warranty
    
    Endof Year
    
    Expenses
    
    Expenditures
    
    of Year( in thousands)Fiscal year ended 2008
    
    $
    1,006
    
    
    $
    1,925
    
    
    $
    (1,860
    )
    
    $
    1,071Fiscal year ended 2007
    
    $
    1,032
    
    
    $
    634
    
    
    $
    (660
    )
    
    $
    1,006Fiscal year ended 2006
    
    $
    1,073
    
    
    $
    756
    
    
    $
    (797
    )
    
    $
    1,032
 34




---



##### 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
 35




---



##### 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 cash and cash equivalents. 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 and for the straight convertible debt feature of our
senior subordinated convertible notes, except the make-whole
provision,
using a level 3 input, 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.
   36




---



##### Table of Contents



Results of Operations
  For the Fiscal Years Ended2008
    
    
    2007
    
    
    2006(in thousands, except percentages)Product sales
    
    $
    313,564
    
    
    
    100
    %
    
    $
    234,780
    
    
    
    100
    %
    
    $
    214,133
    
    
    
    100
    %Cost of product sales
    
    
    127,566
    
    
    
    41
    
    
    
    98,516
    
    
    
    42
    
    
    
    88,648
    
    
    
    41Gross margin
    
    
    185,998
    
    
    
    59
    
    
    
    136,264
    
    
    
    58
    
    
    
    125,485
    
    
    
    59Operating expenses:Selling, general and administrative
    
    
    94,142
    
    
    
    30
    
    
    
    82,044
    
    
    
    35
    
    
    
    73,687
    
    
    
    35Research and development
    
    
    52,943
    
    
    
    17
    
    
    
    43,835
    
    
    
    19
    
    
    
    39,841
    
    
    
    19Amortization of purchased intangible assets
    
    
    13,183
    
    
    
    4
    
    
    
    12,582
    
    
    
    5
    
    
    
    12,055
    
    
    
    6Purchased in-process research and development
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,120
    
    
    
    1Litigation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    447
    
    
    
    Total operating expenses
    
    
    160,268
    
    
    
    51
    
    
    
    138,461
    
    
    
    59
    
    
    
    127,150
    
    
    
    61Income (loss) from operations
    
    
    25,730
    
    
    
    8
    
    
    
    (2,197
    )
    
    
    (1
    )
    
    
    (1,665
    )
    
    
    (2
    )Other income and (expense):Interest expense
    
    
    (4,039
    )
    
    
    (1
    )
    
    
    (4,085
    )
    
    
    (2
    )
    
    
    (4,276
    )
    
    
    (2
    )Interest income and other
    
    
    9,146
    
    
    
    3
    
    
    
    8,624
    
    
    
    4
    
    
    
    8,451
    
    
    
    5Income before taxes
    
    
    30,837
    
    
    
    10
    
    
    
    2,342
    
    
    
    1
    
    
    
    2,510
    
    
    
    1Income tax expense (benefit)
    
    
    8,305
    
    
    
    3
    
    
    
    (893
    )
    
    
    
    
    
    
    (1,463
    )
    
    
    Net income
    
    $
    22,532
    
    
    
    7
    %
    
    $
    3,235
    
    
    
    1
    %
    
    $
    3,973
    
    
    
    1
    %
 Product Sales
  For the Fiscal Years Ended
    
    
    Annual Percentage Change2008
    
    
    2007
    
    
    2006
    
    
    2008/2007
    
    
    2007/2006(in thousands)Cardiovascular
    
    $
    214,976
    
    
    $
    144,220
    
    
    $
    133,710
    
    
    
    49.1
    %
    
    
    7.9
    %ITC
    
    
    98,588
    
    
    
    90,560
    
    
    
    80,423
    
    
    
    8.9
    %
    
    
    12.6
    %Total product sales
    
    $
    313,564
    
    
    $
    234,780
    
    
    $
    214,133
    
    
    
    33.6
    %
    
    
    9.6
    %
   37




---



##### Table of Contents



Gross Profit
  For the Fiscal Years Ended
    
    
    Annual Percentage Change2008
    
    
    2007
    
    
    2006
    
    
    2008/2007
    
    
    2007/2006(in thousands)Total gross profit
    
    $
    185,998
    
    
    $
    136,264
    
    
    $
    125,485
    
    
    
    36.5
    %
    
    
    8 6
    %Total gross margin
    
    
    59.3
    %
    
    
    58.0
    %
    
    
    58.6
    %
    
    
    1.3
    %
    
    
    0.6
    %
   Selling, General and Administrative
  For the Fiscal Years Ended
    
    
    Annual Percentage Change2008
    
    
    2007
    
    
    2006
    
    
    2008/2007
    
    
    2007/2006(in thousands)Total selling, general and administrative
    
    $
    94,142
    
    
    $
    82,044
    
    
    $
    73,687
    
    
    
    14.7
    %
    
    
    11.3
    %
   38




---



##### Table of Contents



Research and Development
  For the Fiscal Years Ended
    
    
    Annual Percentage Change2008
    
    
    2007
    
    
    2006
    
    
    2008/2007
    
    
    2007/2006(in thousands)Total research and development expenses
    
    $
    52,943
    
    
    $
    43,835
    
    
    $
    39,841
    
    
    
    20.8
    %
    
    
    10.0
    %
    Amortization of Purchased Intangible Assets
   Purchased In-Process Research and Development
  Litigation Costs
  39




---



##### Table of Contents



Interest Expense
  For the Fiscal Years Ended
    
    
    Annual Percentage Change2008
    
    
    2007
    
    
    2006
    
    
    2008/2007
    
    
    2007/2006(in thousands)Interest expense
    
    $
    3,418
    
    
    $
    3,464
    
    
    $
    3,655
    
    
    
    1.3
    %
    
    
    5.2
    %Amortization of debt issuance costs
related to
senior subordinated convertible notes
    
    
    621
    
    
    
    621
    
    
    
    621
    
    
    
    0.0
    %
    
    
    0.0
    %Total interest expense
    
    $
    4,039
    
    
    $
    4,085
    
    
    $
    4,276
    
    
    
    1.1
    %
    
    
    4.5
    %
 Interest Income and Other
  For the Fiscal Years Ended
    
    
    Annual Percentage Change2008
    
    
    2007
    
    
    2006
    
    
    2008/2007
    
    
    2007/2006(in thousands)Interest income
    
    $
    8,744
    
    
    $
    8,063
    
    
    $
    7,617
    
    
    
    8.4
    %
    
    
    5.9
    %Foreign currency, net
    
    
    73
    
    
    
    347
    
    
    
    99
    
    
    
    79.0
    %
    
    
    250.5
    %Other
    
    
    329
    
    
    
    214
    
    
    
    735
    
    
    
    53.7
    %
    
    
    70.9
    %Total interest income and other
    
    $
    9,146
    
    
    $
    8,624
    
    
    $
    8,451
    
    
    
    6.1
    %
    
    
    2.0
    %
 Income Taxes
 Accounting for Uncertainty in Income Taxes, an interpretation of SFAS No. 109
  Liquidity and Capital Resources
 Cash, Cash Equivalents and Investments
   40




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##### Table of Contents



For the Fiscal Years Ended2008
    
    
    2007
    
    
    2006(in thousands)Cash and cash equivalents
    
    $
    107,053
    
    
    $
    20,689
    
    
    $
    67,453Short term investments
    
    
    141,598
    
    
    
    197,661
    
    
    
    127,025Restricted short-term investments
    
    
    
    
    
    
    
    
    
    
    1,681Long-term investments
    
    
    29,959
    
    
    
    
    
    
    
    Total cash and equivalents and investments
    
    $
    278,610
    
    
    $
    218,350
    
    
    $
    196,159
     Auction RateSecurities(in thousands)Balance at December 29, 2007
    
    $
    Transfer to Level 3
    
    
    46,050Settlements at par
    
    
    (8,850
    )Unrealized holding loss, included in other comprehensive loss
    
    
    (7,241
    )Balance at January 3, 2009
    
    $
    29,959
   41




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##### Table of Contents



Long-term obligation
  Cash Flow Activities
  For the Fiscal Years Ended2008
    
    
    2007
    
    
    2006(in thousands)Net cash provided by operating activities
    
    $
    51,040
    
    
    $
    14,364
    
    
    $
    16,800Net cash provided by (used in) investing activities
    
    
    7,331
    
    
    
    (78,041
    )
    
    
    13,963Net cash provided by financing activities
    
    
    28,064
    
    
    
    16,960
    
    
    
    617Effect of exchange rate changes on cash and cash equivalents
    
    
    (71
    )
    
    
    (47
    )
    
    
    964Net increase (decrease) in cash and cash equivalents
    
    $
    86,364
    
    
    $
    (46,764
    )
    
    $
    32,344
 Cash Provided by Operating Activities
  Cash Provided by or Used in Investing Activities
  42




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##### Table of Contents



Cash Provided by Financing Activities
  Cash
Used in Acquisitions
  Off Balance Sheet Arrangements
 Letter of Credit 
 Contractual Obligations
  Total
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    Thereafter(in millions)Long-Term Debt
Obligations (a)
    
    $
    255.9
    
    
    $
    3.4
    
    
    $
    3.4
    
    
    $
    1.7
    
    
    $
    
    
    
    $
    
    
    
    $
    247.4Operating Lease
Obligations (b)
    
    
    29.9
    
    
    
    3.1
    
    
    
    3.4
    
    
    
    3.4
    
    
    
    3.4
    
    
    
    3.2
    
    
    
    13.4Purchase
Obligations (c)
    
    
    90.3
    
    
    
    40.0
    
    
    
    13.0
    
    
    
    12.3
    
    
    
    11.6
    
    
    
    11.6
    
    
    
    1.8Total
    
    $
    376.1
    
    
    $
    46.5
    
    
    $
    19.8
    
    
    $
    17.4
    
    
    $
    15.0
    
    
    $
    14.8
    
    
    $
    262.6
 
 (a)
    
    Includes interest of $8.5 million and original issue discount of $103.7 million. See note 10
to our consolidated financial statements included in this Annual Report on Form 10-K related
to our long-term debt.(b)
    
    Our operating lease obligations of $29.9 million were comprised of our various leased
facilities and office equipment.(c)
    
    Our purchase obligations include $58.8 million of supply agreements in effect at January 3,
2009.  Recently Issued Accounting Pronouncements
 Determining the Fair Value of a Financial Asset When the Market for
That Asset is Not Active,
 Determining
Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities
 43




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##### Table of Contents



Accounting For
Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash
Settlement),
   For the Fiscal Years Ended2008
    
    
    2007
    
    
    2006(in thousands, except per share data)(Decrease) in net income (loss)
    
    $
    (4,375
    )
    
    $
    (3,972
    )
    
    $
    (3,544
    )(Decrease)
in net income (loss) per share:Basic
    
    $
    (0.08
    )
    
    $
    (0.07
    )
    
    $
    (0.07
    )Diluted
    
    $
    (0.07
    )
    
    $
    (0.07
    )
    
    $
    (0.07
    )Shares used to compute
per share amounts:Basic
    
    
    55,097
    
    
    
    53,493
    
    
    
    52,155Diluted
    
    
    56,196
    
    
    
    53,493
    
    
    
    53,270
 Hierarchy of Generally Accepted Accounting
Principles The Meaning of Present Fairly in Conformity with Generally Accepted Accounting
Principles.
 Determination of the Useful Life of Intangible
Assets Goodwill and Other Intangible Assets
 Disclosures about Derivative Instruments and Hedging
Activities
 44




---



##### Table of Contents



Effective Date of FASB Statement No. 157
 Business Combinations
 Noncontrolling Interests in Consolidated
Financial Statements Consolidated Financial
Statements.
 
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk
 Interest Rate Risk
    45




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##### Table of Contents



Foreign Currency Rate Fluctuations
   Accounting
for Derivative Instrument and Hedging Activities
 For the Fiscal Years Ended2008
    
    2007
    
    2006(in thousands)Foreign currency
exchange ( loss) on
foreign currency
contracts
    
    $
    (1,984
    )
    
    $
    (702
    )
    
    $
    (231
    )Foreign currency
exchange gain on
foreign translation
adjustments
    
    
    2,057
    
    
    
    1,049
    
    
    
    330
  
 46




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##### Table of Contents



Item 8. Financial Statements and Supplementary Data
 THORATEC CORPORATION
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 PageFinancial Statements:Reports of Independent Registered Public Accounting Firm
    
    
    48Consolidated Balance Sheets
    
    
    50Consolidated Statements of Operations
    
    
    51Consolidated Statements of Shareholders Equity
    
    
    52Consolidated Statements of Cash Flows
    
    
    53Notes to Consolidated Financial Statements
    
    
    54
 47




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
     ,
Accounting for Uncertainty in Income Taxes, an interpretation of Financial Accounting Standards No.
109.
 Internal ControlIntegrated Framework
 /s/ DELOITTE & TOUCHE LLP
 
 48




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  Internal
Control  Integrated Framework
    Internal Control 
Integrated Framework
   
 49




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##### Table of Contents



THORATEC CORPORATION
 
 CONSOLIDATED BALANCE SHEETS
 As of Fiscal Years EndedJanuary 3, 2009
    
    
    December 29, 2007(in thousands)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    107,053
    
    
    $
    20,689Short-term available-for-sale investments
    
    
    141,598
    
    
    
    197,661Receivables, net of allowances of $947 in 2008 and $861 in 2007
    
    
    55,065
    
    
    
    45,368Inventories
    
    
    61,373
    
    
    
    54,935Deferred tax assets
    
    
    8,397
    
    
    
    6,077Short-term income taxes receivable
    
    
    2,514
    
    
    
    484Prepaid expenses and other assets
    
    
    4,901
    
    
    
    5,895Total current assets
    
    
    380,901
    
    
    
    331,109Property, plant and equipment, net
    
    
    50,138
    
    
    
    46,477Goodwill
    
    
    99,287
    
    
    
    98,368Purchased intangible assets, net
    
    
    108,584
    
    
    
    121,767Long-term available-for-sale investments
    
    
    29,959
    
    
    
    Other long-term assets
    
    
    15,715
    
    
    
    15,998Total Assets
    
    $
    684,584
    
    
    $
    613,719LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    10,563
    
    
    $
    9,770Accrued compensation
    
    
    25,550
    
    
    
    14,314Other accrued liabilities
    
    
    12,410
    
    
    
    5,289Total current liabilities
    
    
    48,523
    
    
    
    29,373Senior subordinated convertible notes
    
    
    143,750
    
    
    
    143,750Long-term deferred tax liability
    
    
    31,285
    
    
    
    35,953Other
    
    
    6,326
    
    
    
    6,614Total Liabilities
    
    
    229,884
    
    
    
    215,690Contingencies (Note 9)Shareholders equity:Common shares: no par, authorized 100,000; issued and
outstanding 56,395 in 2008 and 54,108 in 2007
    
    
    
    
    
    
    Additional paid-in-capital
    
    
    500,195
    
    
    
    458,383Accumulated deficit
    
    
    (39,751
    )
    
    
    (61,577
    )Accumulated other comprehensive income:Unrealized gain (loss) on investments
    
    
    (3,337
    )
    
    
    317Cumulative translation adjustments
    
    
    (2,407
    )
    
    
    906Total accumulated other comprehensive income
    
    
    (5,744
    )
    
    
    1,223Total Shareholders Equity
    
    
    454,700
    
    
    
    398,029Total Liabilities and Shareholders Equity
    
    $
    684,584
    
    
    $
    613,719
  50




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##### Table of Contents



THORATEC CORPORATION
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 For the Fiscal Years Ended2008
    
    
    2007
    
    
    2006(in thousands, except per share data)Product sales
    
    $
    313,564
    
    
    $
    234,780
    
    
    $
    214,133Cost of product sales
    
    
    127,566
    
    
    
    98,516
    
    
    
    88,648Gross profit
    
    
    185,998
    
    
    
    136,264
    
    
    
    125,485Operating expenses:Selling, general and administrative
    
    
    94,142
    
    
    
    82,044
    
    
    
    73,687Research and development
    
    
    52,943
    
    
    
    43,835
    
    
    
    39,841Amortization of purchased intangible assets
    
    
    13,183
    
    
    
    12,582
    
    
    
    12,055In-process research and development
    
    
    
    
    
    
    
    
    
    
    1,120Litigation costs
    
    
    
    
    
    
    
    
    
    
    447Total operating expenses
    
    
    160,268
    
    
    
    138,461
    
    
    
    127,150Income (loss) from operations
    
    
    25,730
    
    
    
    (2,197
    )
    
    
    (1,665
    )Other income and (expense):Interest expense
    
    
    (4,039
    )
    
    
    (4,085
    )
    
    
    (4,276
    )Interest income and other
    
    
    9,146
    
    
    
    8,624
    
    
    
    8,451Income before taxes
    
    
    30,837
    
    
    
    2,342
    
    
    
    2,510Income tax expense (benefit)
    
    
    8,305
    
    
    
    (893
    )
    
    
    (1,463
    )Net income
    
    $
    22,532
    
    
    $
    3,235
    
    
    $
    3,973Net income per share:Basic
    
    $
    0.41
    
    
    $
    0.06
    
    
    $
    0.08Diluted
    
    $
    0.39
    
    
    $
    0.06
    
    
    $
    0.07Shares used to compute net income per share:Basic
    
    
    55,097
    
    
    
    53,493
    
    
    
    52,155Diluted
    
    
    63,486
    
    
    
    54,789
    
    
    
    53,270
  51




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##### Table of Contents



THORATEC CORPORATION
 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
 AccumulatedOther
    
    
    Total
    
    
    TotalCommon
    
    
    Additional
    
    
    Accumulated
    
    
    Deferred
    
    
    Comprehensive
    
    
    Shareholders
    
    
    ComprehensiveShares
    
    
    Paid-in Capital
    
    
    Deficit
    
    
    Compensation
    
    
    Income (Loss)
    
    
    Equity
    
    
    Income(in thousands)BALANCE, DECEMBER 31, 2005
    
    
    51,737
    
    
    $
    407,531
    
    
    $
    (58,801
    )
    
    $
    (184
    )
    
    $
    (399
    )
    
    $
    348,147Exercise of common stock options for
cash
    
    
    1,079
    
    
    
    13,380
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,380Issuance of common shares under
Employee Stock Purchase Plan
    
    
    118
    
    
    
    1,692
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,692Tax benefit related to employees and
directors stock plans
    
    
    
    
    
    
    2,811
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,811Repurchase of common shares, net
    
    
    (605
    )
    
    
    (7,385
    )
    
    
    (8,847
    )
    
    
    
    
    
    
    
    
    
    
    (16,232
    )Share-based compensation
    
    
    
    
    
    
    9,912
    
    
    
    
    
    
    
    184
    
    
    
    
    
    
    
    10,096Comprehensive income:Unrealized loss on available-for-sale
investments (net of taxes of $161)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    242
    
    
    
    242
    
    
    
    242Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    964
    
    
    
    964
    
    
    
    964Net income
    
    
    
    
    
    
    
    
    
    
    3,973
    
    
    
    
    
    
    
    
    
    
    
    3,973
    
    
    
    3,973Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    5,179BALANCE, DECEMBER 30, 2006
    
    
    52,329
    
    
    $
    427,941
    
    
    $
    (63,675
    )
    
    $
    
    
    
    $
    807
    
    
    $
    365,073Cumulative adoption effect of FIN 48
    
    
    
    
    
    
    
    
    
    
    (534
    )
    
    
    
    
    
    
    
    
    
    
    (534
    )Exercise of common stock options for
cash
    
    
    1,178
    
    
    
    14,036
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,036Issuance of common shares under
Employee Stock Purchase Plan
    
    
    137
    
    
    
    1,958
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,958Tax benefit related to employees and
directors stock plans
    
    
    
    
    
    
    3,327
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,327Repurchase of common shares, net
    
    
    464
    
    
    
    (411
    )
    
    
    (603
    )
    
    
    
    
    
    
    
    
    
    
    (1,014
    )Share-based compensation
    
    
    
    
    
    
    11,532
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,532Comprehensive income:Unrealized loss on available-for-sale
investments (net of taxes of $222)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    333
    
    
    
    333
    
    
    
    333Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    83
    
    
    
    83
    
    
    
    83Net income
    
    
    
    
    
    
    
    
    
    
    3,235
    
    
    
    
    
    
    
    
    
    
    
    3,235
    
    
    
    3,235Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3,651BALANCE, DECEMBER 29, 2007
    
    
    54,108
    
    
    $
    458,383
    
    
    $
    (61,577
    )
    
    $
    
    
    
    $
    1,223
    
    
    $
    398,029Exercise of common stock options for
cash
    
    
    1,768
    
    
    
    22,914
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,914Issuance of common shares under
Employee Stock Purchase Plan
    
    
    149
    
    
    
    2,062
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,062Tax benefit related to employees and
directors stock plans
    
    
    
    
    
    
    6,926
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,926Repurchase of common shares, net
    
    
    370
    
    
    
    (715
    )
    
    
    (706
    )
    
    
    
    
    
    
    
    
    
    
    (1,421
    )Share-based compensation
    
    
    
    
    
    
    10,625
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,625Comprehensive income:Unrealized loss on available-for-sale
investments (net of taxes of $2,436)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,654
    )
    
    
    (3,654
    )
    
    
    (3,654
    )Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,313
    )
    
    
    (3,313
    )
    
    
    (3,313
    )Net income
    
    
    
    
    
    
    
    
    
    
    22,532
    
    
    
    
    
    
    
    
    
    
    
    22,532
    
    
    
    22,532Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    15,565BALANCE, JANUARY 3, 2009
    
    
    56,395
    
    
    $
    500,195
    
    
    $
    (39,751
    )
    
    $
    
    
    
    $
    (5,744
    )
    
    $
    454,700
  52




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THORATEC CORPORATION
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Fiscal Years Ended2008
    
    
    2007
    
    
    2006(in thousands)Cash flows from operating activities:Net income
    
    $
    22,532
    
    
    $
    3,235
    
    
    $
    3,973Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    23,731
    
    
    
    21,836
    
    
    
    20,292In process research and development
    
    
    
    
    
    
    
    
    
    
    1,120Investment premium amortization (net)
    
    
    2,307
    
    
    
    977
    
    
    
    65Non-cash interest and other expenses
    
    
    1,103
    
    
    
    634
    
    
    
    986Write-down of investment
    
    
    
    
    
    
    500
    
    
    
    Write-down of capitalized costs
    
    
    490
    
    
    
    161
    
    
    
    1,588Tax benefit related to stock options
    
    
    6,926
    
    
    
    3,327
    
    
    
    2,812Share-based compensation expense
    
    
    10,866
    
    
    
    11,414
    
    
    
    9,558Excess tax benefits from share-based compensation
    
    
    (4,509
    )
    
    
    (1,980
    )
    
    
    (1,777
    )Loss on disposal of asset
    
    
    573
    
    
    
    254
    
    
    
    14Change in net deferred tax liability
    
    
    (6,767
    )
    
    
    (9,509
    )
    
    
    (6,438
    )Changes in assets and liabilities:Receivables
    
    
    (12,635
    )
    
    
    (3,373
    )
    
    
    (7,389
    )Inventories
    
    
    (10,433
    )
    
    
    (8,804
    )
    
    
    (8,271
    )Prepaid expenses and other assets
    
    
    1,069
    
    
    
    (1,124
    )
    
    
    (388
    )Accounts payable
    
    
    998
    
    
    
    (3,661
    )
    
    
    4,985Accrued compensation and other accrued liabilities
    
    
    15,191
    
    
    
    3,587
    
    
    
    (2,509
    )Accrued income taxes
    
    
    (402
    )
    
    
    (2,976
    )
    
    
    (1,463
    )Other
    
    
    
    
    
    
    (134
    )
    
    
    (358
    )Net cash provided by operating activities
    
    
    51,040
    
    
    
    14,364
    
    
    
    16,800Cash flows from investing activities:Purchases of available-for-sale investments
    
    
    (153,238
    )
    
    
    (257,668
    )
    
    
    (354,970
    )Sales of available-for-sale investments
    
    
    96,471
    
    
    
    175,475
    
    
    
    340,379Maturities of available-for-sale and restricted investments
    
    
    74,475
    
    
    
    12,803
    
    
    
    66,990Investment in convertible debentures and preferred shares
    
    
    
    
    
    
    (2,000
    )
    
    
    (5,000
    )Purchases of property, plant and equipment, net
    
    
    (10,377
    )
    
    
    (6,651
    )
    
    
    (24,498
    )Acquisition of A-VOX Systems, Inc., net of cash acquired
    
    
    
    
    
    
    
    
    
    
    (8,786
    )Other
    
    
    
    
    
    
    
    
    
    
    (152
    )Net cash provided by (used in) investing activities
    
    
    7,331
    
    
    
    (78,041
    )
    
    
    13,963Cash flows from financing activities:Proceeds from stock option exercises
    
    
    22,914
    
    
    
    14,036
    
    
    
    13,380Proceeds from stock issued under employee stock purchase plan
    
    
    2,062
    
    
    
    1,958
    
    
    
    1,692Excess tax benefits from share-based compensation
    
    
    4,509
    
    
    
    1,980
    
    
    
    1,777Repurchase and retirement of common shares
    
    
    (1,421
    )
    
    
    (1,014
    )
    
    
    (16,232
    )Net cash provided by financing activities
    
    
    28,064
    
    
    
    16,960
    
    
    
    617Effect of exchange rate changes on cash and cash equivalents
    
    
    (71
    )
    
    
    (47
    )
    
    
    964Net increase (decrease) in cash and cash equivalents
    
    
    86,364
    
    
    
    (46,764
    )
    
    
    32,344Cash and cash equivalents at beginning of fiscal year
    
    
    20,689
    
    
    
    67,453
    
    
    
    35,109Cash and cash equivalents at end of fiscal year
    
    $
    107,053
    
    
    $
    20,689
    
    
    $
    67,453Supplemental disclosure of cash flow information:Cash paid for taxes
    
    $
    8,947
    
    
    $
    9,345
    
    
    $
    2,053Cash paid for interest
    
    $
    3,414
    
    
    $
    3,414
    
    
    $
    3,414Supplemental disclosure of non-cash investing and financing activities:Transfers of equipment from inventory to property, plant and equipment
    
    $
    3,055
    
    
    $
    3,698
    
    
    $
    1,917
  53




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##### Table of Contents



THORATEC CORPORATION
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. Operations and Significant Accounting Policies
 The Company and Basis of Presentation
   Principles of Consolidation
  Use of Estimates
  §
    
    the valuation of available-for-sale investments and the determination of other-than-temporary impairments;§
    
    the assessment of recoverability of long-lived assets;§
    
    the share-based compensation expense;§
    
    the recognition and measurement of current and deferred income taxes (including the measurement of uncertain
tax positions); and§
    
    the valuation of inventory.
  Major Customers and Concentration of Credit Risk
   54




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Certain Risks and Uncertainties
  Cash and Cash Equivalents
  Investments
   55




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##### Table of Contents



Fair Value of Financial Instruments
  Fair Value
Measurement
 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.
 Disclosures About Fair Value of
Financial Instruments
 Inventories
  Property, Plant and Equipment
   Capitalized Software Costs for Internal Use
 Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use
 Valuation of Long-Lived Assets
 Accounting
for the Impairment or Disposal of Long-Lived Assets
 56




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##### Table of Contents



Goodwill
 Goodwill and Other Intangible Assets
 Deferred Compensation Plan
  Debt Issuance Costs
  Foreign Currency Translation
  Revenue Recognition and Product Warranty
 Revenue Recognition when Right of Return Exists
   57




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##### Table of Contents



Balance
    
    Charges to
    
    
    
    
    
    BalanceBeginning
    
    Costs and
    
    Warranty
    
    Endof Year
    
    Expenses
    
    Expenditures
    
    of Year( in thousands)Fiscal year ended 2008
    
    $
    1,006
    
    
    $
    1,925
    
    
    $
    (1,860
    )
    
    $
    1,071Fiscal year ended 2007
    
    $
    1,032
    
    
    $
    634
    
    
    $
    (660
    )
    
    $
    1,006Fiscal year ended 2006
    
    $
    1,073
    
    
    $
    756
    
    
    $
    (797
    )
    
    $
    1,032
 Research and Development Expense
 Accounting for Research and Development
Costs
  Purchased In-Process Research and Development
   Share-Based Compensation
 Share-Based Payment
 Accounting for Stock-Based Compensation
  58




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##### Table of Contents



Income Taxes
  Accounting for Uncertainty in Income Taxes,
an interpretation of SFAS No. 109,
   Net Income Per Share
  Other Comprehensive Income
  Letter of Credit
  Recently Issued Accounting Standards
 Determining the Fair Value of a Financial Asset When the Market for
That Asset is Not Active,
 59




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##### Table of Contents



Determining
Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities
 Accounting For
Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash
Settlement),
   For the Fiscal Years Ended2008
    
    
    2007
    
    
    2006(in thousands, except per share data)(Decrease) in net income (loss)
    
    $
    (4,375
    )
    
    $
    (3,972
    )
    
    $
    (3,544
    )(Decrease) in net income (loss) per share:Basic
    
    $
    (0.08
    )
    
    $
    (0.07
    )
    
    $
    (0.07
    )Diluted
    
    $
    (0.07
    )
    
    $
    (0.07
    )
    
    $
    (0.07
    )Shares used
to compute per share amounts:Basic
    
    
    55,097
    
    
    
    53,493
    
    
    
    52,155Diluted
    
    
    56,196
    
    
    
    53,493
    
    
    
    53,270
 Hierarchy of Generally Accepted Accounting
Principles The Meaning of Present Fairly in Conformity with Generally Accepted Accounting
Principles.
 60




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##### Table of Contents



Determination of the Useful Life of Intangible
Assets Goodwill and Other Intangible Assets
 Disclosures about Derivative Instruments and
Hedging Activities
 Effective Date of FASB Statement No. 157
 Business Combinations
 Noncontrolling Interests in Consolidated
Financial Statements Consolidated Financial
Statements.
 2. Investments
    61




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##### Table of Contents



GrossAmortized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains (Losses)
    
    
    Value(in thousands)As of Fiscal Year End 2008:Short-term investments:Municipal bonds
    
    $
    139,931
    
    
    $
    1,667
    
    
    $
    141,598Long-term investments:Auction rate securities
    
    $
    37,200
    
    
    $
    (7,241
    )
    
    $
    29,959As of Fiscal Year End 2007:Short-term investments:Municipal bonds
    
    $
    134,794
    
    
    $
    517
    
    
    $
    135,311Auction rate securities
    
    
    62,350
    
    
    
    
    
    
    
    62,350$
    197,144
    
    
    $
    517
    
    
    $
    197,661
  Amortized
    
    
    FairCost
    
    
    Value(in thousands)As of Fiscal Year End 2008:Maturing within one year
    
    $
    55,552
    
    
    $
    56,093Due after one year through two years
    
    
    84,379
    
    
    
    85,505Short-term available-for sale investments
    
    
    139,931
    
    
    
    141,598Auction rate securities maturing within five years or greater
    
    
    37,200
    
    
    
    29,959$
    177,131
    
    
    $
    171,557As of Fiscal Year End 2007:Maturing within one year
    
    $
    83,857
    
    
    $
    84,011Auction rate securities maturing within one year
    
    
    62,350
    
    
    
    62,350Due after one year through two years
    
    
    50,937
    
    
    
    51,300$
    197,144
    
    
    $
    197,661
   62




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##### Table of Contents



The Meaning of Other-Than-Temporary-Impairment and Its
Application to Certain Investments
 3. 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 which require significant management
judgment or estimation.
  As of January 3, 2009Assets andliabilities
    
    
    
    
    
    
    
    
    
    Significantmeasured 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
    
    
    37,200
    
    
    
    29,959
    
    
    
    
    
    
    
    
    
    
    
    29,959Convertible debenture with Levitronix LLC (fair
value for purposes of disclosure in Note 8)
    
    
    5,711
    
    
    
    4,200
    
    
    
    
    
    
    
    
    
    
    
    4,200LiabilitiesMark to market on foreign exchange instruments (Note 4)
    
    
    73
    
    
    
    73
    
    
    
    
    
    
    
    73
    
    
    
    Make-whole provision (Note 10)
    
    
    46
    
    
    
    46
    
    
    
    
    
    
    
    
    
    
    
    46Senior subordinated convertible notes (fair
value for purposes of disclosure in Note 10)
    
    $
    143,750
    
    
    $
    215,880
    
    
    $
    
    
    
    $
    215,880
    
    
    $
    
  63




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##### Table of Contents



Fair Value Measurement Using SignificantUnobservable Inputs (Level 3)AuctionRate
    
    
    Other Long
    
    
    Other LongSecurities
    
    
    Term Assets
    
    
    Term Liabilities(in thousands)Balance at December 29, 2007
    
    $
    
    
    
    $
    5,000
    
    
    $
    96Transfer to Level 3
    
    
    46,050
    
    
    
    
    
    
    
    Settlements at par
    
    
    (8,850
    )
    
    
    
    
    
    
    Unrealized holding loss, included in interest income and other
    
    
    
    
    
    
    
    
    
    
    (50
    )Unrealized holding loss, included in other comprehensive income
    
    
    (7,241
    )
    
    
    
    
    
    
    Unrealized holding loss, for disclosure purposes only
    
    
    
    
    
    
    (800
    )
    
    
    Balance at January 3, 2009
    
    $
    29,959
    
    
    $
    4,200
    
    
    $
    46
  4. Foreign Exchange Instruments
  Accounting
for Derivative Instrument and Hedging Activities
 For the Fiscal Years Ended2008
    
    2007
    
    2006(in thousands)Foreign currency exchange (loss) on foreign currency contracts
    
    $
    (1,984
    )
    
    $
    (702
    )
    
    $
    (231
    )Foreign currency exchange gain on foreign translation adjustments
    
    
    2,057
    
    
    
    1,049
    
    
    
    330
  64




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##### Table of Contents



5. Inventories
  As of Fiscal Years Ended2008
    
    
    2007(in thousands)Finished goods
    
    $
    24,373
    
    
    $
    20,732Work-in-process
    
    
    9,174
    
    
    
    10,053Raw materials
    
    
    27,826
    
    
    
    24,150Total
    
    $
    61,373
    
    
    $
    54,935
 6. Purchased Intangible Assets and Goodwill
   As of Fiscal Years Ended2008
    
    
    2007(in thousands)Balance at the beginning of the fiscal year
    
    $
    98,368
    
    
    $
    98,494Adjustment for Avox acquisition
    
    
    
    
    
    
    (126
    )Adjustment for the acquisition related to the Cardiovascular division
    
    
    919
    
    
    
    Balance as of the end of the fiscal year
    
    $
    99,287
    
    
    $
    98,368
   As of Fiscal Year Ended 2008Gross Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Net Carrying 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
 65




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##### Table of Contents



As of Fiscal Year Ended 2007Gross Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Net Carrying 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
    Fiscal year:
    
    (in thousands)2009
    
    $
    10,6272010
    
    
    10,2362011
    
    
    9,3372012
    
    
    9,1142013
    
    
    8,720Thereafter
    
    
    60,550Total
    
    $
    108,584
 7. Property, Plant and Equipment
  As of Fiscal Years Ended2008
    
    
    2007(in thousands)Land, building and improvements
    
    $
    16,135
    
    
    $
    16,135Equipment and capitalized software
    
    
    68,029
    
    
    
    61,886Furniture and leasehold improvements
    
    
    27,424
    
    
    
    22,804Total
    
    
    111,588
    
    
    
    100,825Less accumulated depreciation
    
    
    (61,450
    )
    
    
    (54,348
    )$
    50,138
    
    
    $
    46,477
  66




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##### Table of Contents



8. Other Assets
   9. Commitments and Contingencies
 Legal Proceedings
  Leases
  Fiscal year:
    
    (in thousands)2009
    
    $
    3,1112010
    
    
    3,3912011
    
    
    3,4272012
    
    
    3,3462013
    
    
    3,285Thereafter
    
    
    13,374Total
    
    $
    29,934
  Commitments
  67




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10. Long-Term Debt
         68




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11. Share-Based Compensation
    For the Fiscal Years Ended2008
    
    
    2007
    
    
    2006(in thousands, except per share data)Cost of product sales
    
    $
    1,749
    
    
    $
    1,598
    
    
    $
    1,000Selling, general and administrative
    
    
    6,491
    
    
    
    7,232
    
    
    
    5,877Research and development
    
    
    2,626
    
    
    
    2,584
    
    
    
    2,251Total
share-based compensation expense before tax
    
    
    10,866
    
    
    
    11,414
    
    
    
    9,128Tax benefit for share-based
compensation expense
    
    
    4,351
    
    
    
    3,525
    
    
    
    1,757Total
share-based compensation expense (net of taxes)
    
    $
    6,515
    
    
    $
    7,889
    
    
    $
    7,371
    Equity Plans
  69




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Stock Options
   For the Fiscal Years Ended2008
    
    2007
    
    2006Risk-free interest rate
    
    
    3.25
    %
    
    
    4.79
    %
    
    
    4.54
    %Expected volatility
    
    
    40
    %
    
    
    40
    %
    
    
    40
    %Expected option life
    
    5.08-6.07 years
    
    5.08-6.05 years
    
    3.85-5.24 yearsDividends
    
    None
    
    None
    
    None
   70




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Number of
    
    
    Weighted
    
    
    Weighted AverageOptions
    
    
    Average Exercise
    
    
    Remaining Contract(in thousands)
    
    
    Price Per Share
    
    
    Life (years)Outstanding at fiscal year end 2005 (3,574 exercisable at $12.64
weighted average price per share)
    
    
    6,445
    
    
    $
    12.80
    
    
    
    5.91Granted
    
    
    1,625
    
    
    
    20.72Cancelled and expired
    
    
    (406
    )
    
    
    15.50Exercised
    
    
    (1,079
    )
    
    
    12.46Outstanding at fiscal year end 2006 (4,064 exercisable at $12.75
weighted average price per share)
    
    
    6,585
    
    
    $
    14.65
    
    
    
    6.74Granted
    
    
    583
    
    
    
    18.32Cancelled and expired
    
    
    (242
    )
    
    
    17.70Exercised
    
    
    (1,178
    )
    
    
    11.91Outstanding at fiscal year end 2007 (3,940 exercisable at $13.72
weighted average price per share)
    
    
    5,748
    
    
    $
    15.46
    
    
    
    6.19Granted
    
    
    382
    
    
    
    14.98Cancelled and expired
    
    
    (104
    )
    
    
    18.76Exercised
    
    
    (1,768
    )
    
    
    12.96Outstanding at fiscal year end 2008 (2,775 exercisable at $15.23
weighted average price per share)
    
    
    4,259
    
    
    $
    16.37
    
    
    
    5.98Outstanding options vested at fiscal year end 2008 and expected to vest
    
    
    4,123
    
    
    $
    16.33
    
    
    
    5.91
   Options Outstanding(in thousands, except contractual life and exercise price)Weighted
    
    
    
    
    
    Options ExercisableAverage
    
    Weighted
    
    
    
    
    
    WeightedExercise
    
    
    
    
    
    Remaining
    
    Average
    
    
    
    
    
    AveragePrice
    
    Number
    
    Contractual Life
    
    Exercise
    
    Number
    
    ExerciseRange
    
    Outstanding
    
    (In Years)
    
    Price
    
    Outstanding
    
    Price$5.50  $11.97
    
    
    458
    
    
    
    3.26
    
    
    $
    9.69
    
    
    
    453
    
    
    $
    9.6811.98  12.45
    
    
    684
    
    
    
    5.21
    
    
    
    12.44
    
    
    
    684
    
    
    
    12.4412.61  14.97
    
    
    722
    
    
    
    6.99
    
    
    
    14.49
    
    
    
    316
    
    
    
    13.9814.98  15.75
    
    
    482
    
    
    
    3.62
    
    
    
    15.70
    
    
    
    453
    
    
    
    15.7115.88  17.84
    
    
    256
    
    
    
    6.36
    
    
    
    16.69
    
    
    
    180
    
    
    
    16.5417.91  17.91
    
    
    440
    
    
    
    8.11
    
    
    
    17.91
    
    
    
    96
    
    
    
    17.9118.01  20.17
    
    
    91
    
    
    
    6.67
    
    
    
    19.27
    
    
    
    47
    
    
    
    19.2320.34  20.34
    
    
    547
    
    
    
    7.13
    
    
    
    20.34
    
    
    
    237
    
    
    
    20.3420.60  23.62
    
    
    475
    
    
    
    7.08
    
    
    
    23.12
    
    
    
    241
    
    
    
    23.0723.64  33.05
    
    
    104
    
    
    
    5.45
    
    
    
    26.25
    
    
    
    68
    
    
    
    27.394,259
    
    
    
    5.98
    
    
    
    16.37
    
    
    
    2,775
    
    
    
    15.23
  Restricted Stock
  71




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Number of
    
    
    Weighted AverageShares
    
    
    Grant Date Fair(in thousands)
    
    
    ValueOutstanding unvested restricted stock at December 31, 2005
    
    
    150
    
    
    $
    14.89Granted
    
    
    448
    
    
    
    18.03Vested
    
    
    (157
    )
    
    
    15.89Forfeited or expired
    
    
    (19
    )
    
    
    19.90Outstanding unvested restricted stock at December 30, 2006
    
    
    422
    
    
    
    17.63Granted
    
    
    570
    
    
    
    18.39Vested
    
    
    (165
    )
    
    
    16.93Forfeited or expired
    
    
    (59
    )
    
    
    18.31Outstanding unvested restricted stock at December 29, 2007
    
    
    768
    
    
    
    18.29Granted
    
    
    496
    
    
    
    15.41Vested
    
    
    (231
    )
    
    
    18.40Forfeited or expired
    
    
    (50
    )
    
    
    17.90Outstanding unvested restricted stock at January 3, 2009
    
    
    983
    
    
    $
    16.83
 Restricted Stock Units
   Number of
    
    
    Weighted Average
    
    
    Weighted AverageUnits
    
    
    Grant Date Fair
    
    
    Remaining Contract(in thousands)
    
    
    Value
    
    
    (in years)Outstanding units at December 31, 2005
    
    
    
    
    
    $
    
    
    
    
    Granted
    
    
    10
    
    
    
    19.08Released
    
    
    
    
    
    
    Forfeited or expired
    
    
    
    
    
    
    Outstanding units at December 30, 2006
    
    
    10
    
    
    $
    19.08
    
    
    
    1.74Granted
    
    
    15
    
    
    
    18.27Released
    
    
    (3
    )
    
    
    19.10Forfeited or expired
    
    
    (1
    )
    
    
    18.14Outstanding units at December 29, 2007
    
    
    21
    
    
    $
    18.58
    
    
    
    2.82Granted
    
    
    15
    
    
    
    15.00Released
    
    
    (7
    )
    
    
    18.68Forfeited or expired
    
    
    (1
    )
    
    
    18.05Outstanding units at January 3, 2009
    
    
    28
    
    
    $
    16.66
    
    
    
    2.46
 Employee Stock Purchase Plan
  72




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For the Fiscal Years Ended2008
    
    2007
    
    2006Risk-free interest rate
    
    
    1.07
    %
    
    
    4.80
    %
    
    
    4.83
    %Expected volatility
    
    
    60
    %
    
    
    40
    %
    
    
    40
    %Expected option life
    
    0.50 years
    
    0.50 years
    
    0.50 yearsDividends
    
    None
    
    None
    
    None
  12. Common and Preferred Stock
      73




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13. Retirement Savings Plans
   14. Taxes on Income
 Accounting for Income Taxes
  For the Fiscal Years Ended2008
    
    
    2007
    
    
    2006(in thousands)Current:Federal
    
    $
    11,578
    
    
    $
    5,284
    
    
    $
    116State
    
    
    3,192
    
    
    
    1,968
    
    
    
    747Foreign
    
    
    2,122
    
    
    
    1,179
    
    
    
    1,06916,892
    
    
    
    8,431
    
    
    
    1,932Deferred:Federal
    
    
    (6,412
    )
    
    
    (8,146
    )
    
    
    (2,095
    )State
    
    
    (1,968
    )
    
    
    (1,300
    )
    
    
    (1,350
    )Foreign
    
    
    (207
    )
    
    
    122
    
    
    
    50(8,587
    )
    
    
    (9,324
    )
    
    
    (3,395
    )Total income tax expense (benefit)
    
    $
    8,305
    
    
    $
    (893
    )
    
    $
    (1,463
    )
 74




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For the Fiscal Years Ended2008
    
    
    2007
    
    2006(in thousands)Domestic
    
    $
    24,935
    
    
    $
    (1,619
    )
    
    $
    (2,072
    )Foreign
    
    
    5,902
    
    
    
    3,961
    
    
    
    4,582Income before income taxes
    
    $
    30,837
    
    
    $
    2,342
    
    
    $
    2,510
  For the Fiscal Years Ended2008
    
    
    2007
    
    
    2006(in thousands, except percentages)U.S. federal statutory income tax expense
    
    $
    10,793
    
    
    
    35.0
    %
    
    $
    820
    
    
    
    35.0
    %
    
    $
    878
    
    
    
    35.0
    %State income tax expense/(benefit), net of
federal tax expense or benefit
    
    
    169
    
    
    
    0.5
    
    
    
    (415
    )
    
    
    (17.7
    )
    
    
    (258
    )
    
    
    (10.3
    )Share-based compensation
    
    
    (4
    )
    
    
    (0.0
    )
    
    
    910
    
    
    
    38.9
    
    
    
    1,657
    
    
    
    66.0Non-deductible expenses
    
    
    527
    
    
    
    1.7
    
    
    
    291
    
    
    
    12.5
    
    
    
    258
    
    
    
    10.3Research and development credits
    
    
    (1,097
    )
    
    
    (3.6
    )
    
    
    (436
    )
    
    
    (18.6
    )
    
    
    (399
    )
    
    
    (15.9
    )Foreign earnings permanently reinvested
    
    
    (99
    )
    
    
    (0.3
    )
    
    
    (58
    )
    
    
    (2.5
    )
    
    
    (483
    )
    
    
    (19.2
    )Tax advantaged investment income
    
    
    (2,575
    )
    
    
    (8.4
    )
    
    
    (2,560
    )
    
    
    (109.3
    )
    
    
    (1,606
    )
    
    
    (64.0
    )Return-to-provision true-up
    
    
    (528
    )
    
    
    (1.7
    )
    
    
    552
    
    
    
    23.6
    
    
    
    (1,059
    )
    
    
    (42.2
    )ARB 51 true-up
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (336
    )
    
    
    (13.4
    )In-process research and development
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    392
    
    
    
    15.6Extraterritorial income exclusion and other
    
    
    (36
    )
    
    
    (0.1
    )
    
    
    
    
    
    
    
    
    
    
    (315
    )
    
    
    (12.5
    )Domestic production activities
    
    
    (304
    )
    
    
    (1.0
    )
    
    
    (123
    )
    
    
    (5.3
    )
    
    
    (50
    )
    
    
    (2.1
    )Tax reserves
    
    
    1,459
    
    
    
    4.7
    
    
    
    126
    
    
    
    5.4
    
    
    
    (142
    )
    
    
    (5.6
    )$
    8,305
    
    
    
    26.9
    %
    
    $
    (893
    )
    
    
    (38.0
    )%
    
    $
    (1,463
    )
    
    
    (58.3
    )%
   As of Fiscal Years Ended2008
    
    
    2007(in thousands)Deferred tax assets:Write-off of acquired technology
    
    $
    376
    
    
    $
    506Reserves and accruals
    
    
    3,119
    
    
    
    3,964Depreciation and amortization
    
    
    1,746
    
    
    
    1,543Inventory basis difference
    
    
    2,583
    
    
    
    3,023Share based compensation
    
    
    5,170
    
    
    
    3,651Research and development
    
    
    5,861
    
    
    
    5,697Net operating loss carryforwards
    
    
    59
    
    
    
    Unrealized investment gain/loss
    
    
    2,229
    
    
    
    Other, net
    
    
    119
    
    
    
    110Total deferred tax assets
    
    
    21,262
    
    
    
    18,494Deferred tax liabilities:Purchased intangibles
    
    
    (42,779
    )
    
    
    (48,100
    )Other, net
    
    
    (9
    )
    
    
    (211
    )Total deferred tax liabilities
    
    
    (42,788
    )
    
    
    (48,311
    )Net deferred tax liabilities
    
    $
    (21,526
    )
    
    $
    (29,817
    )Reported As:Net current deferred tax assets
    
    $
    8,397
    
    
    $
    6,077Net long-term deferred tax assets (included in Other long-term assets)
    
    
    1,362
    
    
    
    59Net long-term deferred tax liabilities
    
    
    (31,285
    )
    
    
    (35,953
    )Net deferred tax liabilities
    
    $
    (21,526
    )
    
    $
    (29,817
    )
 75




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
    
    Federal alternative minimum tax credits of approximately $1.0 million which may be
carried forward indefinitely.
    
    Research and development tax credits for federal and state income tax purposes of
approximately $4.2 million and $7.2 million, respectively. Federal research and development
tax credit carryforwards expire from 2018 through 2027. State research and development tax
credits generally carry-over indefinitely.
    
    At the end of 2008 we had state net operating loss (NOL) carryforwards of
approximately $1.6 million. If not utilized, the state NOLs will begin to expire in 2021
through 2025.
         For
the Fiscal Years Ended2008
    
    
    2007(in thousands)Balance at beginning of fiscal year
    
    $
    6,853
    
    
    $
    9,300Additions based on tax positions related to the current year
    
    
    725
    
    
    
    445Additions for tax positions, related to prior years
    
    
    1,406
    
    
    
    264Reductions for tax positions, related to prior years
    
    
    (29
    )
    
    
    (2,627
    )Settlements
    
    
    (9
    )
    
    
    (527
    )Reductions for statute of limitations lapses
    
    
    (86
    )
    
    
    (2
    )Balance at end of fiscal year
    
    $
    8,860
    
    
    $
    6,853
 76




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77




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15. Enterprise and Related Geographic Information
  Business segments:
 For the Fiscal Years Ended2008
    
    
    2007
    
    
    2006(in thousands)Product sales:Cardiovascular
    
    $
    214,976
    
    
    $
    144,220
    
    
    $
    133,710ITC
    
    
    98,588
    
    
    
    90,560
    
    
    
    80,423Total product sales
    
    $
    313,564
    
    
    $
    234,780
    
    
    $
    214,133Income (loss) before taxes:Cardiovascular(a) (d)
    
    $
    39,156
    
    
    $
    5,188
    
    
    $
    5,326ITC(a)(b)(d)
    
    
    2,614
    
    
    
    6,787
    
    
    
    5,733Corporate (c) (d)
    
    
    (16,040
    )
    
    
    (14,172
    )
    
    
    (12,277
    )Litigation costs (e)
    
    
    
    
    
    
    
    
    
    
    (447
    )Total operating income (loss)
    
    
    25,730
    
    
    
    (2,197
    )
    
    
    (1,665
    )Other income and (expense):Interest expense
    
    
    (4,039
    )
    
    
    (4,085
    )
    
    
    (4,276
    )Interest income and other
    
    
    9,146
    
    
    
    8,624
    
    
    
    8,451Total income before taxes
    
    $
    30,837
    
    
    $
    2,342
    
    
    $
    2,510Total assets:Cardiovascular
    
    $
    321,605
    
    
    $
    312,691
    
    
    $
    319,604ITC
    
    
    61,552
    
    
    
    62,642
    
    
    
    58,030Corporate (c)
    
    
    301,427
    
    
    
    238,386
    
    
    
    213,501Total assets
    
    $
    684,584
    
    
    $
    613,719
    
    
    $
    591,135Depreciation and amortization:Cardiovascular
    
    $
    18,277
    
    
    $
    17,218
    
    
    $
    17,051ITC
    
    
    4,589
    
    
    
    4,174
    
    
    
    2,991Corporate (c)
    
    
    865
    
    
    
    444
    
    
    
    250Total depreciation and amortization
    
    $
    23,731
    
    
    $
    21,836
    
    
    $
    20,292Capital expenditures (f):Cardiovascular
    
    $
    7,128
    
    
    $
    5,654
    
    
    $
    15,911ITC
    
    
    4,412
    
    
    
    4,435
    
    
    
    3,976Corporate (c)
    
    
    774
    
    
    
    99
    
    
    
    6,554Total capital expenditures
    
    $
    12,314
    
    
    $
    10,188
    
    
    $
    26,441
 
 (a)
    
    Amortization expense of $12.4 million, $11.7 million, and $11.8 million for the fiscal years
ended 2008, 2007 and 2006 respectively, related to the Cardiovascular division. The ITC
division had amortization expense of $0.8 million, $0.9 million and $0.3 million for 2008,
2007 and 2006, respectively.(b)
    
    ITC includes in-process research and development expenses of $1.1 million in 2006.(c)
    
    Represents unallocated items, not specifically identified to any particular business segment.(d)
    
    Includes share-based compensation expense of $6.4 million, $2.9 million and $1.6 million for
Cardiovascular, ITC and Corporate, respectively, for the fiscal year ended 2008, $6.9 million,
$3.0 million and $1.5 million for Cardiovascular, ITC and Corporate, respectively, for the
fiscal year ended 2007 and $5.5 million, $2.7 million and $1.4 million for Cardiovascular, ITC
and Corporate, respectively, for the fiscal year ended 2006.(e)
    
    Relates to litigation expenses not specifically identified to a particular business segment. 78




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##### Table of Contents



(f)
    
    Capital expenditures include inventory transfers of $2.5 million, $2.7 million and $1.6
million for fiscal 2008, 2007 and 2006 respectively, related to our Cardiovascular division
and $0.6 million, $1.0 million and $0.3 million for fiscal 2008, 2007 and 2006 respectively,
related to our ITC division Geographic Areas:
 For the Fiscal Years Ended2008
    
    
    2007
    
    
    2006(in thousands)Product sales:Domestic
    
    $
    232,567
    
    
    $
    169,786
    
    
    $
    162,089International
    
    
    80,997
    
    
    
    64,994
    
    
    
    52,044Total
    
    $
    313,564
    
    
    $
    234,780
    
    
    $
    214,133
 16. Net Income Per Share
  For the Fiscal Years Ended2008
    
    
    2007
    
    
    2006(in thousands, except per share data)Net income for basic calculation
    
    $
    22,532
    
    
    $
    3,235
    
    
    $
    3,973Interest expense on senior subordinated
convertible notes (after tax)
    
    
    2,048
    
    
    
    
    
    
    
    Net income for diluted calculation
    
    $
    24,580
    
    
    $
    3,235
    
    
    $
    3,973Weighted average number of common shares-basic
    
    
    55,097
    
    
    
    53,493
    
    
    
    52,155Dilutive effect of stock-based compensation plans
    
    
    1,099
    
    
    
    1,296
    
    
    
    1,115Dilutive effect on conversion of senior
subordinated convertible notes
    
    
    7,290
    
    
    
    
    
    
    
    Weighted average number of common shares-diluted
    
    
    63,486
    
    
    
    54,789
    
    
    
    53,270Net income per shareBasic
    
    $
    0.41
    
    
    $
    0.06
    
    
    $
    0.08Diluted
    
    $
    0.39
    
    
    $
    0.06
    
    
    $
    0.07
  For the Fiscal Years Ended2008
    
    
    2007
    
    
    2006(in thousands)Options to purchase
shares not included
in the computation
of diluted net
income per share
because their
inclusion would be
antidilutive
    
    
    1,284
    
    
    
    1,919
    
    
    
    1,895
  79




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17. Quarterly Results of Operations (Unaudited)
  First
    
    
    Second
    
    
    Third
    
    
    Fourth(in thousands, except per share data)Fiscal Year 2008:Product sales
    
    $
    64,427
    
    
    $
    82,648
    
    
    $
    80,815
    
    
    $
    85,674Gross profit
    
    
    35,837
    
    
    
    50,823
    
    
    
    48,770
    
    
    
    50,568Net income
    
    
    349
    
    
    
    8,651
    
    
    
    7,182
    
    
    
    6,350Net income per shareBasic
    
    $
    0.01
    
    
    $
    0.16
    
    
    $
    0.13
    
    
    $
    0.11Diluted
    
    $
    0.01
    
    
    $
    0.15
    
    
    $
    0.12
    
    
    $
    0.11Fiscal Year 2007:Product sales
    
    $
    57,310
    
    
    $
    57,333
    
    
    $
    56,055
    
    
    $
    64,082Gross profit
    
    
    34,513
    
    
    
    33,685
    
    
    
    32,348
    
    
    
    35,718Net income (loss)
    
    
    (275
    )
    
    
    1,253
    
    
    
    (1,408
    )
    
    
    3,665Net income
(loss) per shareBasic
    
    $
    (0.01
    )
    
    $
    0.02
    
    
    $
    (0.03
    )
    
    $
    0.07Diluted
    
    $
    (0.01
    )
    
    $
    0.02
    
    
    $
    (0.03
    )
    
    $
    0.07
 18. Subsequent Event
   
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A. Controls and Procedures
  80




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Disclosure Controls and Procedures
   Managements Report on Internal Control Over Financial Reporting
  
   Changes to Internal Controls
  Inherent Limitations on Controls and Procedures
  81




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Item 9B. Other Information
  
 PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance
  
 Item 11. Executive Compensation
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholders
Matters
  
 Item 13. Certain Relationships and Related Transactions, and Director Independence
  
 Item 14. Principal Accounting Fees and Services
  82




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##### Table of Contents



PART IV
 
 Item 15. Exhibit and Financial Statement Schedules
 (a)
    
    List of documents filed as part of this report:1.
    
    Financial Statements and Reports of Independent Registered Public Accounting Firm.Reference is made to the Index to Financial Statements under Item 8 of Part II of this Annual
Report on Form 10-K, where these documents are included.2.
    
    Financial Statement SchedulesSchedule II  Valuation and Qualifying Accounts and Reserves for each of the three fiscal years
ended January 3, 2009, December 29, 2007 and December 30, 2006. Other financial statement
schedules are not included either because they are not required or the information is otherwise
shown in our audited consolidated financial statements or the notes thereto.3.
    
    ExhibitsReference is made to the Exhibit Index on page 85 of this Annual Report on Form 10-K, where these
documents are included.
 83




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##### Table of Contents



THORATEC CORPORATION
 SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
 For Each of the Three Fiscal Years in the Period Ended January 3, 2009
 Balance
    
    Additions
    
    
    
    
    
    BalanceBeginning
    
    (charges
    
    
    
    
    
    End ofof Year
    
    to expense)
    
    Deductions
    
    Year(in thousands)Year Ended January 3, 2009:Allowance for doubtful
accounts
    
    $
    861
    
    
    $
    298
    
    
    $
    (212
    )(1)
    
    $
    947Year Ended December 29, 2007:Allowance for doubtful
accounts
    
    $
    491
    
    
    $
    690
    
    
    $
    (320
    )(1)
    
    $
    861Year Ended December 30, 2006:Allowance for doubtful
accounts
    
    $
    634
    
    
    $
    14
    
    
    $
    (157
    )(1)
    
    $
    491
 
 (1)
    
    Accounts written off. 84




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Exhibit3.1
    
    Thoratecs Articles of Incorporation, as amended.(1)3.2
    
    Thoratecs By-Laws, as amended February 25, 2005.(2)4.1
    
    Rights Agreement between Thoratec Corporation and Computershare Trust Company, Inc. as Rights Agent
dated as of May 2, 2002.(3)4.2
    
    Indenture, dated as of May 24, 2004, by and between Thoratec Corporation and U.S. Bank, National
Association, as Trustee. (4)4.3
    
    Form of Senior Subordinated Convertible Note due 2034.(5)4.4
    
    Pledge Agreement, dated as of May 24, 2004, between Thoratec Corporation and U.S. Bank, National
Association, and Pledge Agreement Supplement, dated as of June 7, 2004.(4)4.5
    
    Control Agreement, dated as of May 24, 2004, between Thoratec Corporation and U.S. Bank, National
Association, and Control Agreement Amendment, dated as of June 7, 2004.(4)4.6
    
    Registration Rights Agreement, dated May 24, 2004, by and among Thoratec Corporation and Merrill
Lynch Pierce Fenner & Smith Incorporated as Initial Purchaser of the Senior Subordinated
Convertible Notes due 2034. (4)10.2
    
    Form of Indemnification Agreement between Thoratec Cardiosystems and its officers and directors.(6)10.5
    
    Thoratecs 1996 Stock Option Plan.(7)10.6
    
    Thoratecs 1996 Nonemployee Directors Stock Option Plan, as amended.(8)10.7
    
    Lease Agreement dated July 25, 1996, between Main Street Associates and Thoratec, as amended.(9)10.8
    
    First Amendment to Lease Agreement originally between Main Street Associates and Thoratec dated
July 25, 1996.(12)10.9
    
    Second Amendment to Lease Agreement originally between Main Street Associates and Thoratec dated
July 25, 1996.(11)10.10
    
    Thoratecs 1997 Stock Option Plan, as amended.(12)10.11
    
    Lease agreement dated August 16, 1995, between International Technidyne Corporation and BHBMC, as
amended.(13)10.12
    
    Thoratecs 2002 Employee Stock Purchase Plan.(14)10.13
    
    Grantor Trust Agreement between Thoratec and Wachovia Bank, National Association effective as of
November 21, 2003.(8)10.14
    
    Commercial Lease between International Technidyne Corporation and Roseville Properties Management
Company dated September 26, 2003. (8)10.15
    
    Lease Agreement between International Technidyne Corporation and NJ Mortgage Association dated
February 21, 2003. (16)10.16
    
    Description of the Executive Disability Income Protection Program.(15)10.17
    
    Purchase and Sale Agreement and Escrow Instructions dated September 2, 2005, by and between
Thoratec and Aegis I, LLC.(17)
 85




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##### Table of Contents



ExhibitNumber
    
    Exhibit10.18
    
    Amended and Restated Thoratec Corporation 2006 Incentive Stock Plan.(18)10.19
    
    Offer Letter Agreement by and between Thoratec and David V. Smith dated November 22, 2006.(19)*10.20
    
    Amended and Restated Employment Agreement by and between Thoratec and Gerhard F. Burbach, dated
April 23, 2007. (20)*10.21
    
    Amended and Restated Employment Agreement by and between Thoratec and Lawrence Cohen, dated April 23, 2007. (20)*10.22
    
    Amended and Restated Separation Benefits Agreement by and between Thoratec and David A. Lehman,
dated April 23, 2007. (20)*10.23
    
    Amended and Restated Separation Benefits Agreement by and between Thoratec and David V. Smith,
dated April 23, 2007. (20)*10.24
    
    Thoratec Corporation Amended and Restated Deferred Compensation Plan Effective January 1, 2005. (21)10.25
    
    First Amendment to Lease between International Technidyne Corporation and Roseville Properties
Management Company effective January 1, 2009.10.26
    
    Description of Director Compensation Program21
    
    Subsidiaries of Thoratec.(15)23.1
    
    Consent of Independent Registered Public Accounting Firm.24
    
    Power of Attorney  Reference
is made to page 89 hereof.31.1
    
    Section 302 Certification of Chief Executive Officer31.2
    
    Section 302 Certification of Chief Financial Officer32.1
    
    Section 906 Certification of Chief Executive Officer32.2
    
    Section 906 Certification of Chief Financial Officer
 
 (1)
    
    Filed as an Exhibit to Thoratecs Annual Report on Form 10-K for the fiscal year ended
December 28, 2002 filed with the SEC on March 20, 2003 and incorporated herein by reference.(2)
    
    Filed as an Exhibit to Thoratecs Form 8-K filed with the SEC on March 3, 2005.(3)
    
    Filed as an Exhibit to Thoratecs Form 8-A12G filed with the SEC on May 3, 2002 (Registration
No. 000-49798), and incorporated herein by reference.(4)
    
    Filed as an Exhibit to Thoratecs Quarterly Report on Form 10-Q for the fiscal quarter ended
July 3, 2004 filed with the SEC on August 12, 2004, and incorporated herein by reference.(5)
    
    Included as an exhibit to Exhibit 4.2.(6)
    
    Filed as an Exhibit to Thoratec Cardiosystems Registration Statement on Form S-1
(Registration No. 33-25144) and incorporated herein by reference.(7)
    
    Filed as an Exhibit to Thoratecs Registration Statement on Form S-8 filed with the SEC on
September 12, 1996, (Registration No. 333-11883) and incorporated herein by reference.(8)
    
    Filed as an Exhibit to Thoratecs Annual Report on Form 10-K for the fiscal year ended
January 3, 2004 filed with the SEC on March 17, 2004 and incorporated herein by reference. 86




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(9)
    
    Filed as an Exhibit to Thoratecs Quarterly Report on Form 10-Q for the fiscal quarter ended
June 29, 1996, filed with the SEC on August 13, 1996, and incorporated herein by reference.(10)
    
    Filed as an Exhibit to Thoratecs Quarterly Report on Form 10-Q for the fiscal quarter ended
June 28, 1997, filed with the SEC on July 30, 1997, and incorporated herein by reference.(11)
    
    Filed as an Exhibit to Thoratecs Quarterly Report on Form 10-Q for the fiscal quarter ended
September 27, 1997 filed with the SEC on November 12, 1997, and incorporated herein by
reference.(12)
    
    Filed as an Exhibit to Thoratecs Registration Statement on Form S-8 filed with the SEC on
June 18, 2003 (Registration No. 333-106238), and incorporated herein by reference.(13)
    
    Filed as an Exhibit to Thoratecs Form 10-K405 filed with the SEC on March 15, 2002
(Registration No. 033-72502), and incorporated herein by reference.(14)
    
    Filed as an Exhibit to Thoratecs Form S-8 POS filed with the SEC on July 1, 2002
(Registration No. 333-90768), and incorporated herein by reference.(15)
    
    Filed as an Exhibit to Thoratecs Annual Report on Form 10-K for the fiscal year ended
January 1, 2005 filed with the SEC on March 16, 2005 and incorporated herein by reference.(16)
    
    Filed as an Exhibit to Thoratecs Quarterly Report on Form 10-Q for the fiscal quarter ended
March 29, 2003 filed with the SEC on May 13, 2003, and incorporated herein by reference.(17)
    
    Filed as an Exhibit to Thoratecs Form 8-K filed with the SEC on September 8, 2005.(18)
    
    Filed as an Exhibit to Thoratecs Form 8-K filed with the SEC on May 22, 2008.(19)
    
    Filed as an Exhibit to Thoratecs form 8-K filed with the SEC on December 4, 2006.(20)
    
    Filed as an Exhibit to Thoratecs Form 8-K filed with the SEC on April 27, 2007.(21)
    
    Filed as an Exhibit to Thoratecs Quarterly Report on Form 10-Q for the fiscal quarter ended
June 30, 2007 filed with the SEC on August 9, 2007 and incorporated herein by reference.*
    
    Indicates a management contract or compensatory plan. 87




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SIGNATURES
 th
 THORATEC CORPORATIONBy:
    /s/ Gerhard F. BurbachGerhard F. BurbachPresident and Chief Executive Officer  88




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##### Table of Contents



POWER OF ATTORNEY
   Signature
    
    Title
    
    Date/s/ Gerhard F. Burbach

Gerhard F. Burbach
    
    Chief Executive Officer, President and Director
    
    February 27, 2009/s/ David V. Smith

David V. Smith
    
    Executive Vice President and Chief Financial Officer
    
    February 27, 2009/s/ Neil F. Dimick

Neil F. Dimick
    
    Director and Chairman of the Board of Directors
    
    February 27, 2009/s/ J. Donald Hill

J. Donald Hill
    
    Director and Vice Chairman of the Board of Directors
    
    February 27, 2009/s/ Howard E. Chase

Howard E. Chase
    
    Director
    
    February 27, 2009/s/ J. Daniel Cole

J. Daniel Cole
    
    Director
    
    February 27, 2009/s/ Steven H. Collis

Steven H. Collis
    
    Director
    
    February 27, 2009/s/ Elisha W. Finney

Elisha W. Finney
    
    Director
    
    February 27, 2009/s/ D. Keith Grossman

D. Keith Grossman
    
    Director
    
    February 27, 2009/s/ Daniel M. Mulvena

Daniel M. Mulvena
    
    Director
    
    February 27, 2009
 89