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Thoratec Corp. Reports Operating Results (10-K)

February 21, 2012 | About:

Thoratec Corp. (NASDAQ:THOR) filed Annual Report for the period ended 2011-12-31.

Thoratec Corp has a market cap of $2.12 billion; its shares were traded at around $35.22 with a P/E ratio of 25.8 and P/S ratio of 5. Thoratec Corp had an annual average earning growth of 24.8% over the past 10 years. GuruFocus rated Thoratec Corp the business predictability rank of 4-star.

Highlight of Business Operations:

(2)During May 2011, all remaining outstanding senior subordinated convertible notes were redeemed for $164.4 million in cash and issuance of 2,397,535 shares of common stock with an estimated fair value at redemption of $82.7 million. The difference of $105.7 million between the fair value of the aggregate consideration paid ($247.1 million) and the face value ($141.4 million) was recorded to additional paid-in capital. (3)On August 3, 2011, we acquired the medical business of Levitronix LLC ("Levitronix"), for approximately $110 million in cash, plus additional cash earn-out amounts (not to exceed $40 million in aggregate). This earn-out is contingent upon achievement of certain product revenue targets and is payable over the four year period starting on August 3, 2011. This acquisition has been accounted for as a business combination, and the assets and liabilities were recorded as of the acquisition date, at their respective fair values. The results of operations of Levitronix have been consolidated in our results of continuing operations from August 3, 2011. The value of the contingent liability was estimated to be $23.6 million as of December 31, 2011. (4)Includes the effect of adjustments to cost of product sales for intangible amortization expense of $8.7 million, $8.7 million, $12.3 million, and $9.5 million in 2010, 2009, 2008 and 2007, respectively, previously presented within operating expense. Refer to Note 1 to the notes in the consolidated financial statements for details.

(1)Includes intangible amortization expense of $8.7 million as adjusted to cost of product sales in 2010 and 2009 to conform to current year presentation. Refer to Note 1 in the Notes to Consolidated Financial Statements for details. (2)Includes intangible assets amortization related to patents and trademarks reclassified to selling, general and administrative in 2010 and 2009 of $1.0 million and $1.1 million, respectively, to conform to current year presentation. Refer to Note 1 in the Notes to Consolidated Financial Statements for details.

In 2011 as compared to 2010, Product sales increased $39.7 million or 10.4% driven by strong sales volume of HeartMate and CentriMag products. The HeartMate product line contributed approximately $33.2 million to the increase, while CentriMag contributed approximately $8.0 million, partially attributable to the Levitronix acquisition completed in August 2011 which added $4.1 million from the date of the acquisition through December 31, 2011. The increase was partially offset by decline of approximately $1.3 million in sales of the Thoratec product line partially due to cannibalization by the HeartMate product line. The remaining $0.2 million were due to decline of other products. From a regional perspective, U.S. contributed approximately $30.3 million to the increase, while international sales contributed approximately $9.4 million. In the U.S., 19 HeartMate II centers were added during 2011 bringing the total to 149 centers. Internationally, we added 20 centers in 2011, bringing the total to 144 centers.

Selling, general and administrative (SG&A) expenses as a percentage of product sales were approximately 25.4%, 23.5%, and 29.7% in 2011, 2010, and 2009, respectively. In 2011 as compared to 2010, SG&A costs primarily increased due to market development initiatives including sales force expansion, increased travel and other selling expenses which were attributed to the higher product sales, and intangible assets amortization in connection with the acquisition of Levitronix in August 2011. Levitronix acquisition-related transaction costs of $3.6 million also contributed to the increase in 2011 over the prior year.

Discontinued operations incurred a loss of $1.0 million in 2011 compared to a loss of $5.8 million during 2010. During 2011 we recorded a charge of $1.0 million ($1.8 million net loss, less an income tax benefit of $0.8 million) for ITC primarily related to post-close severance payments. Discontinued operations incurred a loss of $5.8 million during 2010 compared to a loss of $0.3 million during 2009. The increase in the loss from discontinued operations was primarily due to increase in transaction costs and compensation costs related to the sale of ITC, lower sales as a result of competitive activity and lower gross margin driven by unfavorable manufacturing variances. In addition, we recorded a loss from the sale of ITC of $0.6 million in the 2010 period.

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