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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)

Quarterly report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934

For the quarterly period ended June 29, 2002

or

Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934

for the transition period from __________ to ___________

COMMISSION FILE NUMBER: 1-8145

THORATEC CORPORATION(Exact name of registrant as specified in its charter)

|                                                                                                                                                                 |  |                                                                 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------
|California
(State or other jurisdiction of incorporation or organization)
6035 Stoneridge Drive, Pleasanton, California
(Address of principal executive offices) |  | 94-2340464
(I.R.S. Employer Identification No.)
94588
(Zip Code)

Registrants telephone number, including area code: (925) 847-8600

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes
 No

As of
August 12, 2002, registrant had 56,517,048 shares of common stock outstanding.



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TABLE OF CONTENTS



|                                                                 |                                                                                               |  |  |  |  |  |  | 
|---------------------------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|                                                                 | PART I. FINANCIAL INFORMATION                                                                
|                                                                 | ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                                          
|CONDENSED CONSOLIDATED BALANCE SHEETS                           
|CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS                 
|CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                 
|CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS         
|NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
|                                                                 | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                                                                 | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK                               
|                                                                 | PART II. OTHER INFORMATION                                                                   
|                                                                 | ITEM 2. CHANGES IN SECURITIES                                                                
|                                                                 | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY SHAREHOLDERS                             
|                                                                 | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURES                                                      
|Exhibit 99.1                                                    



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THORATEC CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS

|                              |                                                                                               |                                                                                                                            |    |    |   | 
|----------------------------- | --------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------- | -- | -- | - | 
|Part I. Financial Information |                                                                                               |                                                                                                                            | 3  |   
|                              | Item 1. Condensed Consolidated Financial Statements (unaudited)                               |                                                                                                                            |    | 3  |  
|                              |                                                                                               | Condensed Consolidated Balance Sheets as of June 29, 2002 and December 29, 2001                                            |    |    | 3 | 
|                              |                                                                                               | Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 29, 2002 and June 30, 2001         |    |    | 4 | 
|                              |                                                                                               | Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 29, 2002 and June 30, 2001                   |    |    | 5 | 
|                              |                                                                                               | Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended June 29, 2002 and June
30, 2001 |    |    | 6 | 
|                              |                                                                                               | Notes to Condensed Consolidated Financial Statements                                                                       |    |    | 7 | 
|                              | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |                                                                                                                            |    | 16 |  
|                              | Item 3. Quantitative and Qualitative Disclosure of Market Risk                                |                                                                                                                            |    | 22 |  
|Part II. Other Information    |                                                                                               |                                                                                                                            | 23 |   
|                              | Item 4.
Submission of Matters to a Vote of Security Shareholders                              |                                                                                                                            |    | 23 |  
|                              | Item 6. Exhibits and Reports on Form 8-K                                                      |                                                                                                                            |    | 23 |  
|Signatures                    |                                                                                               |                                                                                                                            | 24 |   

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PART I. FINANCIAL INFORMATION




ITEM 1. CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS

THORATEC CORPORATION AND SUBSIDIARIES




CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)
(in thousands)

|                                                                                     |                                                                                             |                                            |                                                     |         |          |         |              |         |         |         |  
|------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------- | ------------------------------------------ | --------------------------------------------------- | ------- | -------- | ------- | ------------ | ------- | ------- | ------- | -
|                                                                                     |                                                                                             |                                            |                                                     |         | June 29, |         | December 29,
|                                                                                     |                                                                                             |                                            |                                                     |         | 2002     |         | 2001        
|                                                                                     |                                                                                             |                                            |                                                     |         |          |         |             
|Assets                                                                               |                                                                                             |                                            |                                                     |         |          |         |              |        
|Current Assets:                                                                      |                                                                                             |                                            |                                                     |         |          |         |              |        
|                                                                                     | Cash and cash equivalents                                                                   |                                            | $                                                   | 88,256  |          |         | $            | 91,726  |        
|                                                                                     | Receivables, net of allowances of $340 in 2002 and $551 in 2001                             |                                            |                                                     | 23,329  |          |         |              | 26,988  |        
|                                                                                     | Inventories                                                                                 |                                            |                                                     | 33,201  |          |         |              | 25,673  |        
|                                                                                     | Deferred tax asset                                                                          |                                            |                                                     | 13,198  |          |         |              | 11,789  |        
|                                                                                     | Prepaid expenses and other                                                                  |                                            |                                                     | 1,507   |          |         |              | 788     |        
|                                                                                     |                                                                                             |                                            |                                                     |         |          |         |              |         |        
|                                                                                     |                                                                                             | Total Current Assets                       |                                                     |         | 159,491  |         |              |         | 156,964 |        
|                                                                                     |                                                                                             |                                            |                                                     |         |          |         |              |         |        
|Property, plant and equipment                                                        |                                                                                             |                                            | 23,615                                              |         |          |         | 22,645       |        
|Restricted cash and cash equivalents                                                 |                                                                                             |                                            |                                                    |         |          |         | 45,884       |        
|Goodwill                                                                             |                                                                                             |                                            | 96,492                                              |         |          |         | 95,209       |        
|Purchased intangible assets                                                          |                                                                                             |                                            | 190,330                                             |         |          |         | 198,608      |        
|Long-term deferred tax asset                                                         |                                                                                             |                                            | 9,313                                               |         |          |         | 9,313        |        
|Other assets                                                                         |                                                                                             |                                            | 1,081                                               |         |          |         | 1,618        |        
|                                                                                     |                                                                                             |                                            |                                                     |         |          |         |              |         |        
|                                                                                     |                                                                                             | Total Assets                               |                                                     | $       | 480,322  |         |              | $       | 530,241 |        
|                                                                                     |                                                                                             |                                            |                                                     |         |          |         |              |         |        
|Liabilities and Shareholders Equity                                                 |                                                                                             |                                            |                                                     |         |          |         |              |        
|Current Liabilities:                                                                 |                                                                                             |                                            |                                                     |         |          |         |              |        
|                                                                                     | Accounts payable                                                                            |                                            | $                                                   | 7,740   |          |         | $            | 8,271   |        
|                                                                                     | Accrued expenses                                                                            |                                            |                                                     | 9,045   |          |         |              | 11,434  |        
|                                                                                     | Accrued merger and restructuring                                                            |                                            |                                                     | 839     |          |         |              | 1,335   |        
|                                                                                     |                                                                                             |                                            |                                                     |         |          |         |              |         |        
|                                                                                     |                                                                                             | Total Current Liabilities                  |                                                     |         | 17,624   |         |              |         | 21,040  |        
|                                                                                     |                                                                                             |                                            |                                                     |         |          |         |              |         |        
|Subordinated convertible debentures (includes $1,500 due to
Thermo Electron in 2001) |                                                                                             |                                            |                                                    |         |          |         | 54,838       |        
|Long-term deferred tax liability and other                                           |                                                                                             |                                            | 80,030                                              |         |          |         | 81,020       |        
|                                                                                     |                                                                                             |                                            |                                                     |         |          |         |              |         |        
|                                                                                     |                                                                                             | Total Liabilities                          |                                                     |         | 97,654   |         |              |         | 156,898 |        
|                                                                                     |                                                                                             |                                            |                                                     |         |          |         |              |         |        
|Shareholders Equity:                                                                |                                                                                             |                                            |                                                     |         |          |         |              |        
|                                                                                     | Common Shares; 100,000 authorized; issued and outstanding
56,582 in 2002 and 56,114 in 2001 |                                            |                                                     | 421,282 |          |         |              | 409,081 |        
|                                                                                     | Deferred compensation                                                                       |                                            |                                                     | (3,996  | )        |         |              | (4,555  | )      
|                                                                                     | Retained earnings (accumulated deficit)                                                     |                                            |                                                     | (34,651 | )        |         |              | (31,166 | )      
|                                                                                     | Accumulated other comprehensive income (loss):                                              |                                            |                                                     |         |          |         |              |         |        
|                                                                                     |                                                                                             | Cumulative translation adjustments         |                                                     |         | 33       |         |              |         | (17     | )      
|                                                                                     |                                                                                             |                                            |                                                     |         |          |         |              |         |        
|                                                                                     |                                                                                             |                                            | Total accumulated other comprehensive income (loss) |         |          | 33      |              |         |         | (17     | )
|                                                                                     |                                                                                             |                                            |                                                     |         |          |         |              |         |        
|                                                                                     |                                                                                             |                                            | Total Shareholders Equity                          |         |          | 382,668 |              |         |         | 373,343 |  
|                                                                                     |                                                                                             |                                            |                                                     |         |          |         |              |         |        
|                                                                                     |                                                                                             | Total Liabilities and Shareholders Equity |                                                     | $       | 480,322  |         |              | $       | 530,241 |        
|                                                                                     |                                                                                             |                                            |                                                     |         |          |         |              |         |        

See notes to condensed consolidated financial statements.

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THORATEC CORPORATION AND SUBSIDIARIES




CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)
(in thousands, except per share data)

|                                                                                          |                                                          |   |                    |       |                  |   |          |       |          |   |        |        |  |   |         |        | 
|----------------------------------------------------------------------------------------- | -------------------------------------------------------- | - | ------------------ | ----- | ---------------- | - | -------- | ----- | -------- | - | ------ | ------ |  | - | ------- | ------ | 
|                                                                                          |                                                          |   | Three Months Ended |       | Six Months Ended
|                                                                                          |                                                          |   |                    |       |                 
|                                                                                          |                                                          |   | June 29,           |       | June 30,         |   | June 29, |       | June 30,
|                                                                                          |                                                          |   | 2002               |       | 2001             |   | 2002     |       | 2001    
|                                                                                          |                                                          |   |                    |       |                  |   |          |       |         
|Product sales                                                                             |                                                          | $ | 31,034             |       |                  | $ | 28,218   |       |          | $ | 60,673 |        |  | $ | 49,697  |       
|Cost of product sales                                                                     |                                                          |   | 13,281             |       |                  |   | 12,645   |       |          |   | 26,445 |        |  |   | 22,684  |       
|                                                                                          |                                                          |   |                    |       |                  |   |          |       |          |   |        |        |  |   |         |       
|Gross profit                                                                              |                                                          |   | 17,753             |       |                  |   | 15,573   |       |          |   | 34,228 |        |  |   | 27,013  |       
|                                                                                          |                                                          |   |                    |       |                  |   |          |       |          |   |        |        |  |   |         |       
|Operating expenses:                                                                       |                                                          |   |                    |       |                  |   |          |       |          |   |        |        |  |   |         |       
|                                                                                          | Selling, general and administrative                      |   |                    | 9,847 |                  |   |          | 8,311 |          |   |        | 18,566 |  |   |         | 15,642 | 
|                                                                                          | Research and development                                 |   |                    | 6,083 |                  |   |          | 6,430 |          |   |        | 12,985 |  |   |         | 11,660 | 
|                                                                                          | Amortization of goodwill and purchased intangible assets |   |                    | 3,096 |                  |   |          | 4,526 |          |   |        | 6,192  |  |   |         | 6,807  | 
|                                                                                          | In-process research and development                      |   |                    |      |                  |   |          |      |          |   |        |       |  |   |         | 76,858 | 
|                                                                                          | Merger and restructuring costs                           |   |                    | 506   |                  |   |          | 1,605 |          |   |        | 827    |  |   |         | 5,145  | 
|                                                                                          |                                                          |   |                    |       |                  |   |          |       |          |   |        |        |  |   |         |       
|Total operating expenses                                                                  |                                                          |   | 19,532             |       |                  |   | 20,872   |       |          |   | 38,570 |        |  |   | 116,112 |       
|                                                                                          |                                                          |   |                    |       |                  |   |          |       |          |   |        |        |  |   |         |       
|Loss from operations                                                                      |                                                          |   | (1,779             | )     |                  |   | (5,299   | )     |          |   | (4,342 | )      |  |   | (89,099 | )     
|Interest and other income  net                                                           |                                                          |   | 854                |       |                  |   | 591      |       |          |   | 1,000  |        |  |   | 1,735   |       
|                                                                                          |                                                          |   |                    |       |                  |   |          |       |          |   |        |        |  |   |         |       
|Loss before income tax benefit and extraordinary item                                     |                                                          |   | (925               | )     |                  |   | (4,708   | )     |          |   | (3,342 | )      |  |   | (87,364 | )     
|Income tax benefit                                                                        |                                                          |   | (369               | )     |                  |   | (1,605   | )     |          |   | (1,337 | )      |  |   | (2,080  | )     
|                                                                                          |                                                          |   |                    |       |                  |   |          |       |          |   |        |        |  |   |         |       
|Loss before extraordinary item                                                            |                                                          |   | (556               | )     |                  |   | (3,103   | )     |          |   | (2,005 | )      |  |   | (85,284 | )     
|Extraordinary item  loss on early extinguishment of
debt, net of $206 income tax benefit |                                                          |   |                   |       |                  |   |         |       |          |   | (309   | )      |  |   |        |       
|                                                                                          |                                                          |   |                    |       |                  |   |          |       |          |   |        |        |  |   |         |       
|Net loss                                                                                  |                                                          | $ | (556               | )     |                  | $ | (3,103   | )     |          | $ | (2,314 | )      |  | $ | (85,284 | )     
|                                                                                          |                                                          |   |                    |       |                  |   |          |       |          |   |        |        |  |   |         |       
|Net loss per share, basic and diluted                                                     |                                                          | $ | (0.01              | )     |                  | $ | (0.06    | )     |          | $ | (0.04  | )      |  | $ | (1.73   | )     
|                                                                                          |                                                          |   |                    |       |                  |   |          |       |          |   |        |        |  |   |         |       
|Shares used to compute net loss per share, basic and diluted                              |                                                          |   | 56,799             |       |                  |   | 54,629   |       |          |   | 56,725 |        |  |   | 49,204  |       

See notes to condensed consolidated financial statements.

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THORATEC CORPORATION AND SUBSIDIARIES




CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)
(in thousands)

|                                                                        |                                                                             |                                                     |                                       |         |                  |      |          |          |         |        |  
|----------------------------------------------------------------------- | --------------------------------------------------------------------------- | --------------------------------------------------- | ------------------------------------- | ------- | ---------------- | ---- | -------- | -------- | ------- | ------ | -
|                                                                        |                                                                             |                                                     |                                       |         | Six Months Ended
|                                                                        |                                                                             |                                                     |                                       |         |                 
|                                                                        |                                                                             |                                                     |                                       |         | June 29,         |      | June 30,
|                                                                        |                                                                             |                                                     |                                       |         | 2002             |      | 2001    
|                                                                        |                                                                             |                                                     |                                       |         |                  |      |         
|Cash flows from operating activities:                                   |                                                                             |                                                     |                                       |         |                  |      |          |         
|                                                                        | Net loss                                                                    |                                                     | $                                     | (2,314  | )                |      | $        | (85,284  | )      
|                                                                        | Adjustments to reconcile net loss to net cash used in operating activities: |                                                     |                                       |         |                  |      |          |          |        
|                                                                        | Depreciation and amortization                                               |                                                     |                                       | 8,459   |                  |      |          | 8,728    |        
|                                                                        | Write-off of in-process research and development costs                      |                                                     |                                       |        |                  |      |          | 76,858   |        
|                                                                        | Amortization of deferred compensation                                       |                                                     |                                       | 559     |                  |      |          | 404      |        
|                                                                        | Non-cash compensation                                                       |                                                     |                                       | 152     |                  |      |          |         |        
|                                                                        | Provision for losses on accounts receivable                                 |                                                     |                                       | (212    | )                |      |          | 323      |        
|                                                                        | Change in net deferred tax liability                                        |                                                     |                                       | (1,261  | )                |      |          | (2,481   | )      
|                                                                        | Extraordinary loss on debt extinguishment                                   |                                                     |                                       | 515     |                  |      |          |         |        
|                                                                        | Other non-cash items                                                        |                                                     |                                       | (94     | )                |      |          | 93       |        
|                                                                        | Changes in assets and liabilities:                                          |                                                     |                                       |         |                  |      |          |          |        
|                                                                        |                                                                             | Receivables                                         |                                       |         | 3,851            |      |          |          | 823     |       
|                                                                        |                                                                             | Inventories                                         |                                       |         | (7,052           | )    |          |          | (2,928  | )     
|                                                                        |                                                                             | Prepaid expenses and other assets                   |                                       |         | (592             | )    |          |          | (246    | )     
|                                                                        |                                                                             | Accounts payable and other liabilities              |                                       |         | (2,965           | )    |          |          | (5,898  | )     
|                                                                        |                                                                             |                                                     |                                       |         |                  |      |          |          |        
|                                                                        |                                                                             |                                                     | Net cash used in operating activities |         |                  | (954 | )        |          |         | (9,608 | )
|                                                                        |                                                                             |                                                     |                                       |         |                  |      |          |          |        
|Cash flows from investing activities:                                   |                                                                             |                                                     |                                       |         |                  |      |          |         
|                                                                        | Purchases of short-term available-for-sale investments                      |                                                     |                                       |        |                  |      |          | (112,069 | )      
|                                                                        | Maturities of short-term available-for-sale investments                     |                                                     |                                       |        |                  |      |          | 87,192   |        
|                                                                        | Sales of short-term available-for-sale investments                          |                                                     |                                       |        |                  |      |          | 58,617   |        
|                                                                        | Repayment of convertible debentures                                         |                                                     |                                       | (54,838 | )                |      |          |         |        
|                                                                        | Capitalized transaction costs                                               |                                                     |                                       |        |                  |      |          | (5,838   | )      
|                                                                        | Reclassification
from (to) restricted cash and cash equivalents             |                                                     |                                       | 45,884  |                  |      |          | (45,723  | )      
|                                                                        | Purchases of property, plant and equipment                                  |                                                     |                                       | (3,666  | )                |      |          | (1,459   | )      
|                                                                        | Cash acquired in business acquisition                                       |                                                     |                                       |        |                  |      |          | 3,456    |        
|                                                                        |                                                                             |                                                     |                                       |         |                  |      |          |          |        
|                                                                        |                                                                             | Net cash used in investing activities               |                                       |         | (12,620          | )    |          |          | (15,824 | )     
|                                                                        |                                                                             |                                                     |                                       |         |                  |      |          |          |        
|Cash flows from financing activities:                                   |                                                                             |                                                     |                                       |         |                  |      |          |         
|                                                                        | Common stock issued upon exercise of options                                |                                                     |                                       | 643     |                  |      |          | 415      |        
|                                                                        | Common stock issued in public placement  net                               |                                                     |                                       | 15,446  |                  |      |          |         |        
|                                                                        | Repurchase of common stock                                                  |                                                     |                                       | (6,033  | )                |      |          | (1,733   | )      
|                                                                        |                                                                             |                                                     |                                       |         |                  |      |          |          |        
|                                                                        |                                                                             | Net cash provided by (used in) financing activities |                                       |         | 10,056           |      |          |          | (1,318  | )     
|                                                                        | Effect of exchange rate changes on cash                                     |                                                     |                                       | 48      |                  |      |          | 27       |        
|                                                                        |                                                                             |                                                     |                                       |         |                  |      |          |          |        
|                                                                        | Net decrease in cash and cash equivalents                                   |                                                     |                                       | (3,470  | )                |      |          | (26,723  | )      
|                                                                        | Cash and cash equivalents at beginning of period                            |                                                     |                                       | 91,726  |                  |      |          | 30,236   |        
|                                                                        |                                                                             |                                                     |                                       |         |                  |      |          |          |        
|                                                                        | Cash and cash equivalents at end of period                                  |                                                     | $                                     | 88,256  |                  |      | $        | 3,513    |        
|                                                                        |                                                                             |                                                     |                                       |         |                  |      |          |          |        
|Supplemental Cash Flow Disclosure:                                      |                                                                             |                                                     |                                       |         |                  |      |          |         
|                                                                        | Cash paid for taxes                                                         |                                                     | $                                     | 180     |                  |      | $        | 452      |        
|                                                                        | Cash paid for interest                                                      |                                                     |                                       | 839     |                  |      |          | 1,302    |        
|Supplemental Disclosure of Non-Cash Investing and Financing Activities: |                                                                             |                                                     |                                       |         |                  |      |          |         
|                                                                        | Reclassification of assembled workforce, net of taxes                       |                                                     |                                       | 1,334   |                  |      |          |         |        
|                                                                        | Tax benefit related to stock option exercises                               |                                                     |                                       | 147     |                  |      |          |         |        

See notes to condensed consolidated financial statements.

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THORATEC CORPORATION AND SUBSIDIARIES




CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(unaudited)
(in thousands)

|                              |                                          |   |                    |    |                  |   |          |    |          |   |        |    |  |   |         |     |  
|----------------------------- | ---------------------------------------- | - | ------------------ | -- | ---------------- | - | -------- | -- | -------- | - | ------ | -- |  | - | ------- | --- | -
|                              |                                          |   | Three Months Ended |    | Six Months Ended
|                              |                                          |   |                    |    |                 
|                              |                                          |   | June 29,           |    | June 30,         |   | June 29, |    | June 30,
|                              |                                          |   | 2002               |    | 2001             |   | 2002     |    | 2001    
|                              |                                          |   |                    |    |                  |   |          |    |         
|Net loss                      |                                          | $ | (556               | )  |                  | $ | (3,103   | )  |          | $ | (2,314 | )  |  | $ | (85,284 | )  
|                              |                                          |   |                    |    |                  |   |          |    |          |   |        |    |  |   |         |    
|Other net comprehensive loss: |                                          |   |                    |    |                  |   |          |    |          |   |        |    |  |   |         |    
|                              | Unrealized gain on securities            |   |                    |   |                  |   |          |   |          |   |        |   |  |   |         | 39  |  
|                              | Foreign currency translation adjustments |   |                    | 60 |                  |   |          | (1 | )        |   |        | 50 |  |   |         | (50 | )
|                              |                                          |   |                    |    |                  |   |          |    |          |   |        |    |  |   |         |    
|Comprehensive loss            |                                          | $ | (496               | )  |                  | $ | (3,104   | )  |          | $ | (2,264 | )  |  | $ | (85,295 | )  
|                              |                                          |   |                    |    |                  |   |          |    |          |   |        |    |  |   |         |    

See notes to condensed consolidated financial statements.

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THORATEC CORPORATION AND SUBSIDIARIES




NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. Basis of Presentation

The interim condensed consolidated financial statements of Thoratec
Corporation, referred to as we, our,Thoratec, or our Company have been
prepared and presented in accordance with accounting principles generally
accepted in the United States of America and the rules and regulations of the
Securities and Exchange Commission, or the SEC, without audit and, in our
opinion, reflect all adjustments necessary (consisting only of normal recurring
adjustments) to present fairly our financial position at June 29, 2002 and
December 29, 2001, our results of operations for the three-month and six-month
periods ended June 29, 2002 and June 30, 2001 and cash flows for the six-month
periods ended June 29, 2002 and June 30, 2001. Certain information and footnote
disclosures normally included in our annual financial statements prepared in
accordance with accounting principles generally accepted in the United States
of America have been condensed or omitted. The accompanying financial
statements should be read in conjunction with our fiscal 2001 consolidated
financial statements filed with the SEC in our Annual Report on Form 10-K.

Our merger with
Thermo Cardiosystems Inc., or TCA, was completed on
February 14, 2001, which we refer to as the Merger. Because the Merger was
treated as a reverse acquisition, the 2001 condensed consolidated financial
information presented herein includes the financial results of TCA for the
entire three and six-month periods ended June 30, 2001 and the financial
results of Thoratec for the post-merger period from February 14, 2001 through
June 30, 2001. The operating results for any interim period are not necessarily
indicative of the results that may be expected for any future period.

The preparation of our condensed consolidated financial statements
included herein necessarily requires us to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the consolidated balance sheet dates and
the reported amounts of revenues and expenses for the periods presented.

We have made certain reclassifications of 2001 amounts to conform to the
current presentation.

2. Merger of Thoratec and TCA

As a result of the Merger, $76.9 million relating to in-process research
and development, or IPR&D, was expensed in the first quarter of 2001. The
write-off of IPR&D related to projects that were in development, had not
reached technological feasibility, had no alternative future use and for which
successful development was uncertain. Current estimates and assumptions related
to the valuation of IPR&D remain materially consistent with our initial
estimates performed at the time of the Merger.

The fair value of Thoratecs net assets have been estimated for purposes
of allocating the purchase price. The purchase price and allocation of purchase
price as of June 29, 2002 are summarized as follows (in thousands):

|                              |                                                                                                                              |                                                             |                      |         |         |         | 
|----------------------------- | ---------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------- | -------------------- | ------- | ------- | ------- | 
|Purchase price:               |                                                                                                                              |                                                             |                      |        
|                              | Common stock                                                                                                                 |                                                             | $                    | 306,889 |        
|                              | Stock options                                                                                                                |                                                             |                      | 33,524  |        
|                              | Transaction costs                                                                                                            |                                                             |                      | 5,780   |        
|                              |                                                                                                                              |                                                             |                      |        
|                              |                                                                                                                              |                                                             | Total purchase price |         | $       | 346,193 | 
|                              |                                                                                                                              |                                                             |                      |        
|Allocation of purchase price: |                                                                                                                              |                                                             |                      |        
|                              | Tangible assets acquired (primarily cash and short-term
investments, receivables, inventory, and equipment and
improvements) |                                                             | $                    | 41,018  |        
|                              | Fair market valuation of property lease                                                                                      |                                                             |                      | 2,285   |        
|                              | Deferred tax asset                                                                                                           |                                                             |                      | 4,332   |        
|                              | Deferred compensation                                                                                                        |                                                             |                      | 841     |        
|                              | Intangible net assets acquired:                                                                                              |                                                             |                      |         |        
|                              |                                                                                                                              | Patents, trademarks and tradenames and purchases technology |                      |         | 206,960 |        
|                              |                                                                                                                              | Goodwill (including assembled workforce)                    |                      |         | 101,226 |        
|                              | In-process research and development                                                                                          |                                                             |                      | 76,858  |        
|                              | Liabilities assumed                                                                                                          |                                                             |                      | (10,831 | )      
|                              | Deferred tax liability                                                                                                       |                                                             |                      | (76,496 | )      
|                              |                                                                                                                              |                                                             |                      |        
|                              |                                                                                                                              |                                                             | Total                |         | $       | 346,193 | 
|                              |                                                                                                                              |                                                             |                      |        

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3. New Accounting Pronouncements

As of the beginning of fiscal year 2002, we adopted Statement of Financial
Accounting Standards, or SFAS, No. 142, Goodwill and Other Intangible Assets,
which addresses the financial accounting and reporting standards for the
acquisition of intangible assets outside of a business combination and for
goodwill and other intangible assets subsequent to their acquisition. This
accounting standard requires that goodwill be separately disclosed from other
intangible assets in the statement of financial position, and no longer be
amortized but tested for impairment on a periodic basis. The provisions of this
accounting standard also require the completion of a transitional impairment
test within six months of adoption, with any impairments identified treated as
a cumulative effect of a change in accounting principle. We have completed our
transitional goodwill impairment test as of December 30, 2001 and determined
that no adjustment to the carrying value of the goodwill was needed. On an ongoing basis, absent any impairment
indicators, we expect to perform a goodwill impairment test during the fourth
quarter of each year.

In accordance with SFAS No. 142, we discontinued the amortization of
goodwill effective as of the beginning of fiscal year 2002. In addition, we
reassessed the useful lives of our identifiable intangible assets and
determined that the lives were appropriate.

The following table presents the impact of adopting SFAS No. 142 on net
loss and net loss per share had the standard been in effect for the three and
six months ended June 30, 2001:

|                                                                                     |  |                    |        |                  |  |   |         |  
|------------------------------------------------------------------------------------ |  | ------------------ | ------ | ---------------- |  | - | ------- | -
|                                                                                     |  | Three Months Ended |        | Six Months Ended
|                                                                                     |  |                    |        |                 
|                                                                                     |  | June 30,           |        | June 30,        
|                                                                                     |  | 2001               |        | 2001            
|                                                                                     |  |                    |        |                 
|Net loss as reported                                                                 |  | $                  | (3,103 | )                |  | $ | (85,284 | )
|Adjustments:                                                                         |  |                    |        |                  |  |   |         |  
|Amortization of goodwill, net of tax                                                 |  |                    | 814    |                  |  |   | 1,829   |  
|                                                                                     |  |                    |        |                  |  |   |         |  
|Net*
        $
        (2,289
        )
        
        $
        (83,455
        ) |  | $                  | (2,289 | )                |  | $ | (83,455 | )
|                                                                                     |  |                    |        |                  |  |   |         |  
|As reported basic and diluted net loss per share                                     |  | $                  | (0.06  | )                |  | $ | (1.73   | )
|Impact of amortization of goodwill, net of tax                                       |  |                    | 0.01   |                  |  |   | 0.04    |  
|                                                                                     |  |                    |        |                  |  |   |         |  
|Adjusted basic and diluted net loss per share                                        |  | $                  | (0.05  | )                |  | $ | (1.69   | )
|                                                                                     |  |                    |        |                  |  |   |         |  

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. SFAS No. 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs, including legal obligations.
We are required to adopt SFAS No. 143 at the beginning of fiscal year 2003. We
are currently evaluating the impact of the adoption of SFAS No. 143.

In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, effective for fiscal years
beginning after December 31, 2001. Under the new rules, the criteria required
for classifying an asset as held-for-sale have been significantly changed.
Assets held-for-sale are stated at the lower of their fair values or carrying
amounts, and depreciation is no longer recognized. In addition, the expected
future operating losses from discontinued operations will be displayed in
discontinued operations in the period in which the losses are incurred rather
than as of the measurement date. More dispositions will qualify for
discontinued operations treatment in the statement of operations under the new rules.
We adopted SFAS No. 144 at the beginning of fiscal year 2002. The adoption of
SFAS No. 144 did not have any impact on our financial position, results of
operations or cash flows.

In April 2002, the FASB issued Statement of Financial Accounting Standards
No. 145, which, among other things, changed the presentation of gains and
losses on the extinguishment of debt. Any gain or loss on extinguishment of
debt that does not meet the criteria in APB Opinion 30, Reporting the Results
of Operations  Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and Transactions,
shall be included in operating earnings and not presented separately as an
extraordinary item. We will adopt SFAS No. 145 at the beginning of fiscal year
2003. We are currently evaluating the impact of this statement on
our financial position, results of operations, and cash flows. If adoption of
this standard results in our gains and losses on the extinguishment of our debt
being included in operating earnings, we will reclassify the extraordinary loss
incurred this year of $0.5 million to operating earnings as of the date of
adoption.

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In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities, which addresses accounting for restructuring
and similar costs. SFAS No. 146 supersedes previous accounting guidance,
principally Emerging Issues Task Force Issue , or EITF, No. 94-3
"Liability Regonition for Certain Employee Termination Benefits and Other Costs
to Exit on Activity (including Certain Costs Incurred in a Restructuring)". The Company will adopt
the provisions of SFAS No. 146 for restructuring activities initiated after
December 31,2002. SFAS No. 146 requires that the liability for costs associated
with an exit or disposal activity be recognized when the liability is incurred.
Under Issue 94-3, a liability for an exit cost was recognized at the date of
the Companys commitment to an exit plan. SFAS No. 146 also establishes that the
liability should initially be measured and recorded at fair value.
Accordingly, SFAS No. 146 may affect the timing of recognizing future restructuring
costs as well as the amounts recognized.

4. Inventories

Inventories consist of the following (in thousands):

|                |       |   |          |        |              |   |        |        | 
|--------------- | ----- | - | -------- | ------ | ------------ | - | ------ | ------ | 
|                |       |   | As of   
|                |       |   |         
|                |       |   | June 29, |        | December 29,
|                |       |   | 2002     |        | 2001        
|                |       |   |          |        |             
|Finished goods  |       | $ | 19,673   |        |              | $ | 15,276 |       
|Work in process |       |   | 6,283    |        |              |   | 4,322  |       
|Raw materials   |       |   | 7,245    |        |              |   | 6,075  |       
|                |       |   |          |        |              |   |        |       
|                | Total |   | $        | 33,201 |              |   | $      | 25,673 | 
|                |       |   |          |        |              |   |        |       

5. Property, Plant and Equipment

Property, plant, and equipment consist of the following (in thousands):

|                                       |  |          |         |              |  |   |         |  
|-------------------------------------- |  | -------- | ------- | ------------ |  | - | ------- | -
|                                       |  | As of   
|                                       |  |         
|                                       |  | June 29, |         | December 29,
|                                       |  | 2002     |         | 2001        
|                                       |  |          |         |             
|Property, plant and equipment, at cost |  | $        | 44,552  |              |  | $ | 41,550  |  
|Less accumulated depreciation          |  |          | (20,937 | )            |  |   | (18,905 | )
|                                       |  |          |         |              |  |   |         |  
|                                       |  | $        | 23,615  |              |  | $ | 22,645  |  
|                                       |  |          |         |              |  |   |         |  

6. Goodwill and Other Intangible Assets

The change in the carrying amount of goodwill, which is only attributable
to our Cardiovascular business segment, for the six-month period ended June 29,
2002 was as follows (in thousands):

|                                                           |  |   |        |  
|---------------------------------------------------------- |  | - | ------ | -
|Balance as of December 29, 2001                            |  | $ | 95,209 |  
|Reclassification of assembled workforce, net of taxes      |  |   | 1,334  |  
|Adjustment to reflect resolution of pre-merger contingency |  |   | (51    | )
|                                                           |  |   |        |  
|Balance as of June 29, 2002                                |  | $ | 96,492 |  
|                                                           |  |   |        |  

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The components of identifiable intangible assets, consisting primarily of
patents and trademarks, developed technology and core technology, which are
included in purchased intangible assets on the consolidated balance sheets, are
as follows (in thousands):

|                         |  |          |         |              |  |   |         |  
|------------------------ |  | -------- | ------- | ------------ |  | - | ------- | -
|                         |  | As of    |         | As of       
|                         |  | June 29, |         | December 29,
|                         |  | 2002     |         | 2001        
|                         |  |          |         |             
|Gross carrying amount    |  | $        | 206,960 |              |  | $ | 209,572 |  
|Accumulated amortization |  |          | (16,630 | )            |  |   | (10,964 | )
|                         |  |          |         |              |  |   |         |  
|Net carrying amount      |  | $        | 190,330 |              |  | $ | 198,608 |  
|                         |  |          |         |              |  |   |         |  

As of the beginning of fiscal 2002, the purchased intangible asset
associated with the assembled workforce was reclassified to goodwill. At the
time of the reclassification, the gross carrying amount and accumulated
amortization of the assembled workforce intangible asset was $2.6 million and
$0.4 million, respectively.

Amortization expense related to identifiable intangible assets for each of
the three and six-month periods ended June 29, 2002 and
June 30, 2001 was $3.1 million, $6.2 million, $3.2 million, and $4.8 million, respectively. Estimated
amortization expense for the remainder of fiscal 2002 is
$6.2 million and $12.4 million for each of the five succeeding years. The purchased intangible assets have
estimated useful lives of eight to twenty years.

7. Subordinated Convertible Debentures

On March 11, 2002 we completed the redemption of our outstanding
subordinated convertible debentures at par plus accrued interest using
restricted cash and cash equivalents of approximately $45.9 million and cash of
approximately $9.8 million. An extraordinary loss in the amount of $0.3 million
net of a tax benefit of $0.2 million was recorded on the date of the redemption
related to the write-off of the capitalized debt issuance costs. Upon the
closing of the Merger with TCA in February 2001, $45.0 million in cash and cash
equivalents was pledged as collateral for a letter of credit guarantee to
Thermo Electron related to Thermo Electrons guarantee of our subordinated
debentures. As a result of the redemption, the letter of credit guarantee to
Thermo Electron was extinguished.

8. Common and Preferred Stock

We filed a registration statement on Form S-3 with the SEC to register
1,055,000 newly issued shares of our common stock and to register for resale
5,945,000 shares of our common stock held by selling shareholders, of which
5,825,000 shares were held by Thermo Electron Corporation or Thermo Electron.
This registration statement became effective on February 12, 2002 and all
shares registered were sold on February 15, 2002. We received
$15.4 million,
net of underwriting fees and discounts and other issuance costs, from the sale
of the 1,055,000 newly issued shares. In addition, the underwriters exercised a
30-day option to purchase from Thermo Electron 1,050,000 additional shares of
our common stock to cover any over-allotments. We received no proceeds from the
sale of shares by selling shareholders or from the sale of the over-allotment
shares. As of June 29, 2002. Thermo Electron owned approximately 14% of our
total outstanding common stock.

We recently filed another registration statement on Form S-3
with the SEC to register for resale up to 7.6 million shares of our
common stock held by Thermo Electron. This registration statement is expected
to become effective on or about August 14, 2002. We will not receive any
proceeds from the sale of any of these shares.

On April 12, 2001 we announced that our Board of Directors authorized a
stock repurchase program under which our common stock with a market value up to
$20 million may be acquired in the open market or in privately negotiated
transactions. The number of shares to be purchased and the timing of purchases
will be based on several conditions, including the price of our common stock,
general market conditions and other factors. During the six months ended June 29, 2002, we repurchased 653,000 shares
of our common stock on the open market for $6.0 million. From the inception of
the program through June 29, 2002, we have repurchased 845,700 million shares of
our common stock for $7.7 million. All repurchased common stock has been
retired.

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On May 2, 2002, we adopted a
shareholder rights plan, which we call the
Rights Plan. Under the Rights Plan, we distributed one purchase right for
each share of common stock outstanding at the close of business on May 17,
2002. If a person or group acquires 15% or more of our common stock in a
transaction not pre-approved by our Board of Directors, each right will entitle
its holder, other than the acquirer, to buy our common stock at 50% of its
market value for the rights then current exercise price (initially $70.00). In
addition, if an unapproved party acquires more than 15% of our common stock,
and our Company or our business is later acquired by the unapproved party or in
a transaction in which all shareholders are not treated alike, shareholders
with unexercised rights, other than the unapproved party, will be entitled to
purchase common stock of the merger party or asset buyer with a value of twice
the exercise price of the rights. Each right also becomes exercisable for one
one-thousandth of a share of our Series RP preferred stock at the rights then
current exercise price ten days after an unapproved third party makes, or
announces an intention to make, a tender offer or exchange offer that, if
completed, would result in the unapproved party acquiring 15% or more of our
common stock. Our Board of Directors may redeem the rights for a nominal amount
before an event that causes the rights to become exercisable. The rights will
expire on May 2, 2012.

In connection with the Rights Plan, we designated
100,000 no par
shares of Series RP preferred stock. These shares, if issued, will be entitled
to receive quarterly dividends and a liquidation preference. There are no
shares of Series RP preferred stock issued and outstanding and we do not
anticipate issuing any shares of Series RP preferred stock except as may be
required under the Rights Plan.

On May 31, 2002, our shareholders approved an
Employee Stock Purchase Plan,
or the ESPP. The ESPP authorizes the issuance of up to 500,000 shares of common
stock to participating employees. In addition, the ESPP provides for an annual
increase of up to 250,000 shares in the total number of shares available for
issuance under the ESPP on March 1 of each year. As of June 29, 2002, 679 of
our employees would have been eligible to participate in the ESPP.

The ESPP will be implemented through a series of six-month offering
periods, the first of which will commence no sooner than the first trading day
of November 2002. A participating employee may have up to 15% of their
compensation withheld during an offering period. At the end of each offering
period, the accumulated payroll deductions of each employee will be used to
purchase shares at the purchase price for that offering period. The purchase
price of the shares will be 85 percent of the lower of the fair market value of
the shares on the first or the last day of that offering period.

Because participation by employees in the ESPP will be voluntary, and is
subject to certain eligibility requirements, we cannot determine the number of
shares of common stock that will be purchased in the future by our employees as
a group.

9. Merger and Restructuring Costs

Merger and restructuring costs were recorded in the condensed consolidated
statements of operations as
follows (in thousands):

|              |  |                    |     |                  |  |          |       |          |  |   |     |  |  |   |       | 
|------------- |  | ------------------ | --- | ---------------- |  | -------- | ----- | -------- |  | - | --- |  |  | - | ----- | 
|              |  | Three Months Ended |     | Six Months Ended
|              |  |                    |     |                 
|              |  | June 29,           |     | June 30,         |  | June 29, |       | June 30,
|              |  | 2002               |     | 2001             |  | 2002     |       | 2001    
|              |  |                    |     |                  |  |          |       |         
|Merger        |  | $                  | 152 |                  |  | $        | 766   |          |  | $ | 289 |  |  | $ | 4,306 | 
|Restructuring |  |                    | 354 |                  |  |          | 839   |          |  |   | 538 |  |  |   | 839   | 
|              |  |                    |     |                  |  |          |       |          |  |   |     |  |  |   |       | 
|Total         |  | $                  | 506 |                  |  | $        | 1,605 |          |  | $ | 827 |  |  | $ | 5,145 | 
|              |  |                    |     |                  |  |          |       |          |  |   |     |  |  |   |       | 

Merger Costs

Early in 2000, Thermo Electron announced its intent to sell TCA. In
conjunction with this announcement, TCA put in place an employee retention
plan, which offered a bonus to certain key employees to continue employment
with TCA through the completion of the sale of the company. Upon closure of the
Merger between TCA and Thoratec, certain Thoratec executives stock options
accelerated per the original terms of the stock option agreements. In exchange
for a waiver of their rights to immediately exercise these options and to sell
the related stock, we compensated these executives for that waiver. Merger
costs recorded during the three months ended June 29, 2002 consisted of
executive waiver agreement expenses. Merger costs recorded during the three and
six-month periods ended June 30, 2001 consisted principally of employee
severance, employee retention costs and outside consulting, accounting and
legal expenses associated with the Merger.

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The following table reflects the activity in accrued merger costs for the
three and six-month periods ended June 29, 2002 and June 30, 2001 (in thousands):

|                  |                                                                  |                    |      |                  |   |          |       |          |   |   |     |      |   |   |       |        |  
|----------------- | ---------------------------------------------------------------- | ------------------ | ---- | ---------------- | - | -------- | ----- | -------- | - | - | --- | ---- | - | - | ----- | ------ | -
|                  |                                                                  | Three Months Ended |      | Six Months Ended
|                  |                                                                  |                    |      |                 
|                  |                                                                  | June 29,           |      | June 30,         |   | June 29, |       | June 30,
|                  |                                                                  | 2002               |      | 2001             |   | 2002     |       | 2001    
|                  |                                                                  |                    |      |                  |   |          |       |         
|Beginning balance |                                                                  | $                  | (198 | )                |   | $        | 3,503 |          |   | $ | 472 |      |   | $ | 1,708 |       
|Add:              |                                                                  |                    |      |                  |   |          |       |          |   |   |     |      |   |   |       |       
|                  | Accruals pursuant to
executive waiver agreements                 |                    |      | 135              |   |          |       | 213      |   |   |     | 270  |   |   |       | 319    |  
|                  | Accruals pursuant to
employee retention and severance agreements |                    |      |                 |   |          |       | 139      |   |   |     |     |   |   |       | 2,597  |  
|                  | Accruals of other merger costs                                   |                    |      | 17               |   |          |       | 414      |   |   |     | 19   |   |   |       | 1,390  |  
|Less:             |                                                                  |                    |      |                  |   |          |       |          |   |   |     |      |   |   |       |       
|                  | Payments pursuant to
executive waiver agreements                 |                    |      |                 |   |          |       |         |   |   |     | (810 | ) |   |       |       |  
|                  | Payments pursuant to
employee retention and severance agreements |                    |      |                 |   |          |       | (2,719   | ) |   |     |     |   |   |       | (3,803 | )
|                  | Payments of other merger costs                                   |                    |      | (17              | ) |          |       | (488     | ) |   |     | (14  | ) |   |       | (1,149 | )
|                  |                                                                  |                    |      |                  |   |          |       |          |   |   |     |      |   |   |       |       
|Ending balance    |                                                                  | $                  | (63  | )                |   | $        | 1,062 |          |   | $ | (63 | )    |   | $ | 1,062 |       
|                  |                                                                  |                    |      |                  |   |          |       |          |   |   |     |      |   |   |       |       

In accordance with the executive waiver agreements, payments to the
executives occurred at the one-year anniversary of the Merger, although the
executives continue to be restricted from exercising some of their options and
selling the related stock for an additional six months following the one-year
anniversary date. The total expense related to the waiver agreements of
$810,000 is being amortized over the 18-month waiver period. As of June 29,
2002, the ending balance of accrued merger costs has been reclassified to
prepaid expenses and other in the accompanying condensed consolidated balance
sheet.

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Restructuring Costs

In June 2001, we approved a plan to consolidate all of our Cardiovascular
product manufacturing operations to our manufacturing facilities and
headquarters in Pleasanton, California, which we refer to as the Restructuring
Plan. The restructuring initiatives, which commenced in 2001, are expected to
achieve operating efficiencies and result in substantial cost savings. Substantially all of the
milestones related to the relocation that are under our control have been
completed. Because our products
are regulated by the U.S. Food and Drug Administration, or the FDA, it is estimated it will take an additional six months
to complete the FDA review and certification process before all of the
products being transferred can be manufactured in Pleasanton. The
timing of these events is consistent with estimates made at the
inception of the Restructuring Plan. From
the inception of the Restructuring Plan through June 29, 2002, we have recorded
$1.6 million of restructuring charges in accordance with EITF No. 94-3, and Staff Accounting Bulletin No. 100,
Restructuring and Impairment Charges. These charges represent estimated
employee severance costs and stock option acceleration charges. Since the announcement
of the Restructuring Plan in the second quarter of 2001, we have paid
approximately $0.5 million in severance payments to 31 employees. The following is a summary of our accrued restructuring
costs activity for the three-month and six-month periods ended June 29, 2002 and June
30, 2001 (in thousands):

|                             |                                |                    |               |                  |               |   |               |     |               |   |     |      |   |   |     |     | 
|---------------------------- | ------------------------------ | ------------------ | ------------- | ---------------- | ------------- | - | ------------- | --- | ------------- | - | --- | ---- | - | - | --- | --- | 
|                             |                                | Three Months
Ended |               | Six Months
Ended
|                             |                                |                    |               |                 
|                             |                                |                    | June 29, 2002 |                  | June 30, 2001 |   | June 29, 2002 |     | June 30, 2001
|                             |                                |                    |               |                  |               |   |               |     |              
|Accrued Restructuring Costs: |                                |                    |               |                  |               |   |               |     |               |   |     |      |   |   |     |    
|Beginning balance            |                                | $                  | 881           |                  |               | $ |              |     |               | $ | 863 |      |   | $ |    |    
|                             | Employee severance accrual     |                    |               | 242              |               |   |               | 839 |               |   |     | 386  |   |   |     | 839 | 
|                             | Payments of employee severance |                    |               | (284             | )             |   |               |    |               |   |     | (410 | ) |   |     |    | 
|                             |                                |                    |               |                  |               |   |               |     |               |   |     |      |   |   |     |    
|Ending balance               |                                | $                  | 839           |                  |               | $ | 839           |     |               | $ | 839 |      |   | $ | 839 |    
|                             |                                |                    |               |                  |               |   |               |     |               |   |     |      |   |   |     |    

In addition to the employee severance, estimated restructuring costs for
each of the three and six-month periods ended June 29, 2002 and June 30, 2001
includes $112,000, $152,000, nil, and nil, respectively, of expense related to
the estimated fair value of options granted to the employees to be severed in
the Restructuring Plan, which will accelerate upon the employees termination.

10. Income Taxes

Our effective tax benefit rate was 40% for both the three and six-month
periods ended June 29, 2002. For the three and six-month periods ended June 30,
2001, our effective tax benefit rate was 34% and 2%, respectively. The
effective tax benefit rate for 2002 differed from the statutory federal income
tax rate primarily due to the impact of state income taxes. The effective tax
benefit rate for the six-month period of 2001 differed from the statutory
federal income tax rate primarily due to the nondeductible nature of expenses
related to our merger with TCA, including the write-off of in-process research
and development costs, the amortization of goodwill and other nondeductible
merger transaction expenses.

At June 29, 2002 and December 29, 2001, we reported a net deferred tax
liability of approximately $56.3 million and $58.6 million, respectively,
comprised principally of temporary differences between the financial statement and
income tax bases of intangible assets.

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11. Net Loss Per Share

Basic loss per share is computed by dividing net loss by the weighted
average number of common shares outstanding during the period. Diluted loss per
share reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock.
As a result of our net losses for all periods presented, there is no difference
between basic and diluted net loss per share. Options to
purchase 389,910 and 1,062,849 shares of common stock for the three and
six-month periods ended June 29, 2002 respectively, were not included in the
computations of diluted net loss per share because the loss position in both
periods would have rendered the additional shares antidilutive. Options to
purchase 6,283,714 shares of common stock for both of the three and six-month periods
ended June 30, 2001 were not included in the computations of diluted loss per
share because the loss position in both periods would have rendered the
additional shares antidilutive. In addition, the effect of assuming the
conversion of our 4.75% subordinated convertible debentures, convertible at
$37.62 per share, was excluded from the calculation of diluted net loss per
share for the three and six-month periods ended June 30, 2001 and June 29, 2002
because the effects would be antidilutive.

12. Business Segment and Geographical Data

We organize and manage our business by functional operating entities. Our
functional entities operate in two segments: (1) Cardiovascular and (2) Other
Medical Equipment. The 2001 condensed consolidated financial information
presented herein includes the financial results of TCAs Cardiovascular segment
and Other Medical Equipment segment for the entire three and six-month periods
ended June 30, 2001 and the financial results of Thoratecs Cardiovascular
segment for only the post-merger period from February 14, 2001 through June 30,
2001.

Business Segments (in thousands):

|                                                 |                                                        |                      |     |        |                    |   |                  |        |               |   |               |        |        |   |       |         |         |   | 
|------------------------------------------------ | ------------------------------------------------------ | -------------------- | --- | ------ | ------------------ | - | ---------------- | ------ | ------------- | - | ------------- | ------ | ------ | - | ----- | ------- | ------- | - | 
|                                                 |                                                        |                      |     |        | Three Months Ended |   | Six Months Ended
|                                                 |                                                        |                      |     |        |                    |   |                 
|                                                 |                                                        |                      |     |        | June 29, 2002      |   | June 30, 2001    |        | June 29, 2002 |   | June 30, 2001
|                                                 |                                                        |                      |     |        |                    |   |                  |        |               |   |              
|Product sales:                                   |                                                        |                      |     |        |                    |   |                  |        |               |   |               |        |        |   |       |        
|                                                 | Cardiovascular                                         |                      | $   | 19,829 |                    |   | $                | 18,038 |               |   | $             | 38,520 |        |   | $     | 29,225  |        
|                                                 | Other Medical Equipment                                |                      |     | 11,205 |                    |   |                  | 10,180 |               |   |               | 22,153 |        |   |       | 20,472  |        
|                                                 |                                                        |                      |     |        |                    |   |                  |        |               |   |               |        |        |   |       |         |        
|                                                 |                                                        | Total product sales  |     | $      | 31,034             |   |                  | $      | 28,218        |   |               | $      | 60,673 |   |       | $       | 49,697  |  
|                                                 |                                                        |                      |     |        |                    |   |                  |        |               |   |               |        |        |   |       |         |        
|Loss before income taxes and extraordinary item: |                                                        |                      |     |        |                    |   |                  |        |               |   |               |        |        |   |       |        
|                                                 | Cardiovascular                                         |                      | $   | 1,747  |                    |   | $                | (745   | )             |   | $             | 1,875  |        |   | $     | (3,073  | )      
|                                                 | Other Medical Equipment                                |                      |     | 2,149  |                    |   |                  | 2,231  |               |   |               | 4,381  |        |   |       | 4,131   |        
|                                                 | Corporate (a)                                          |                      |     | (2,072 | )                  |   |                  | (654   | )             |   |               | (3,579 | )      |   |       | (1,347  | )      
|Purchase accounting entries:                     |                                                        |                      |     |        |                    |   |                  |        |               |   |               |        |        |   |       |        
|                                                 | Amortization of goodwill and purchased
intangibles (b) |                      |     | (3,096 | )                  |   |                  | (4,526 | )             |   |               | (6,192 | )      |   |       | (6,807  | )      
|                                                 | In-process
research and development (b)                |                      |     |       |                    |   |                  |       |               |   |               |       |        |   |       | (76,858 | )      
|                                                 | Merger and restructuring costs                         |                      |     | (506   | )                  |   |                  | (1,605 | )             |   |               | (827   | )      |   |       | (5,145  | )      
|                                                 |                                                        |                      |     |        |                    |   |                  |        |               |   |               |        |        |   |       |         |        
|                                                 |                                                        | Total operating loss |     |        | (1,778             | ) |                  |        | (5,299        | ) |               |        | (4,342 | ) |       |         | (89,099 | )
|Interest and other income, net                   |                                                        |                      | 854 |        |                    |   | 591              |        |               |   | 1,000         |        |        |   | 1,735 |        
|                                                 |                                                        |                      |     |        |                    |   |                  |        |               |   |               |        |        |   |       |         |        
|                                                 | Loss before income taxes and extraordinary item        |                      | $   | (924   | )                  |   | $                | (4,708 | )             |   | $             | (3,342 | )      |   | $     | (87,364 | )      
|                                                 |                                                        |                      |     |        |                    |   |                  |        |               |   |               |        |        |   |       |         |        



---

|(a) |  | Represents primarily general and administrative expenses not specifically
identified to any particular business segment.
|--- |  | ------------------------------------------------------------------------------------------------------------------------
|(b) |  | Related to the Cardiovascular segment.                                                                                  

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Geographic Areas (in thousands):

|               |                         |                     |   |                    |       |                  |   |               |       |               |   |        |        |  |   |        |        | 
|-------------- | ----------------------- | ------------------- | - | ------------------ | ----- | ---------------- | - | ------------- | ----- | ------------- | - | ------ | ------ |  | - | ------ | ------ | 
|               |                         |                     |   | Three Months Ended |       | Six Months Ended
|               |                         |                     |   |                    |       |                 
|               |                         |                     |   | June 29, 2002      |       | June 30, 2001    |   | June 29, 2002 |       | June 30, 2001
|               |                         |                     |   |                    |       |                  |   |               |       |              
|Product sales: |                         |                     |   |                    |       |                  |   |               |       |               |   |        |        |  |   |       
|               | Domestic                |                     | $ | 25,324             |       |                  | $ | 21,536        |       |               | $ | 50,075 |        |  | $ | 38,479 |       
|               |                         |                     |   |                    |       |                  |   |               |       |               |   |        |        |  |   |        |       
|               | Europe                  |                     |   | 3,263              |       |                  |   | 3,231         |       |               |   | 6,544  |        |  |   | 6,217  |       
|               | All other international |                     |   | 2,447              |       |                  |   | 3,451         |       |               |   | 4,054  |        |  |   | 5,001  |       
|               |                         |                     |   |                    |       |                  |   |               |       |               |   |        |        |  |   |        |       
|               |                         | Total international |   |                    | 5,710 |                  |   |               | 6,682 |               |   |        | 10,598 |  |   |        | 11,218 | 
|               |                         |                     |   |                    |       |                  |   |               |       |               |   |        |        |  |   |        |       
|               | Total                   |                     | $ | 31,034             |       |                  | $ | 28,218        |       |               | $ | 60,673 |        |  | $ | 49,697 |       
|               |                         |                     |   |                    |       |                  |   |               |       |               |   |        |        |  |   |        |       

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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This Form 10-Q may contain statements that we believe are, or may be
considered to be, forward-looking statements, within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934. These forward-looking statements generally can be identified by
use of statements that include phrases such as believe, expect,
anticipate, intend, plan, foresee, may, hope, will, estimates,
potential, continue or other similar words or phrases. Similarly,
statements that describe our objectives, plans or goals also are
forward-looking statements. All of these forward-looking statements are subject
to risks and uncertainties that could cause our actual results to differ
materially from those contemplated by the relevant forward-looking statement.
The principal risk factors that could cause actual performance and future
actions to differ materially from the forward-looking statements include, but
are not limited to the results of clinical trials, governmental regulatory
approval processes, plans to develop and market new products, market acceptance
of new products, announcements by our competitors, an intensely competitive
market, the ability to integrate acquired operations, the ability to improve
financial performance, and other factors identified in our Annual Report on
Form 10-K for 2001 which we filed with the Securities and Exchange Commission,
or the SEC. Readers are urged to consider these factors carefully in
evaluating the forward-looking statements. The forward-looking statements
included in this Form 10-Q are made only as of the date of this report and we
undertake no obligation to publicly update these forward-looking statements to
reflect subsequent events or circumstances.

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 in this Form 10-Q, and our Annual
Report on Form 10-K for 2001 filed with the SEC.

Overview

We are a leading manufacturer of circulatory support products for use by
patients with congestive heart failure, or CHF. According to the American Heart
Association, 4.7 million patients in the United States suffer from CHF and an
additional 550,000 patients are diagnosed with this disease annually. We were
the first company to receive U.S. Food and Drug Administration, or FDA, approval to commercially market a ventricular
assist device, or VAD, to treat patients with late-stage heart failure, which
comprises approximately 5% of the CHF patient population. Our VADs are used
primarily by these CHF patients to perform some or all of the pumping function
of the heart and we currently offer the widest range of products to serve this
market. We believe that our long-standing reputation for quality and innovation
and our excellent relationships with leading cardiovascular surgeons worldwide
position us to capture growth opportunities in the expanding congestive heart
failure market. We also develop and sell products that are used by physicians
and hospitals for vascular and diagnostic applications that include vascular
grafts, blood coagulation testing and skin incision devices. We conduct
business both domestically and internationally.

The Merger with Thermo Cardiosystems

On February 14, 2001, we completed our Merger with Thermo Cardiosystems Inc., or TCA. Pursuant to the
merger agreement between Thoratec and TCA dated October 3, 2000, Thoratec
issued 32,226,074 new shares of our common stock to the shareholders of TCA in
exchange for all the outstanding common stock of TCA (38,594,281 shares
outstanding as of February 14, 2001) at an exchange ratio of 0.835 shares of
our common stock for each share of TCA stock. Immediately following the
transaction, TCAs shareholders owned 59% of our then outstanding common stock
and our former shareholders owned the remaining shares of our common stock.
Thermo Electron Corporation, or Thermo Electron, the majority shareholder of
TCA prior to the Merger, received 19,312,959 shares of the 32,226,074 newly
issued shares. Immediately following the Merger, Thermo Electron owned 35% of
our then outstanding common stock. Pursuant to the terms of a Registration
Rights Agreement (Registration Rights Agreement) between us and Thermo
Electron dated October 3, 2000, we filed a registration statement on Form S-3
with the SEC, which became effective on June 15, 2001, to register for resale
4,828,240 shares of the our common stock held by Thermo Electron. Subsequent to
that filing, Thermo Electron sold substantially all of the registered shares.
We filed another registration statement on Form S-3 with the SEC to register
1,055,000 newly issued shares of our common stock and to register for resale
5,945,000 shares of our common stock held by selling shareholders, of which
5,825,000 shares were held by Thermo Electron. This registration statement
became effective on February 12, 2002 and all shares registered were sold on
February 15, 2002. We received $15.5 million, net of underwriting fees and
discounts and other issuance costs, from the sale of the 1,055,000 newly issued
shares. In addition, the underwriters exercised a 30-day option to

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purchase from Thermo Electron 1,050,000 shares of our common stock to cover any
over-allotments. We received no proceeds from the sale of shares by selling
shareholders or from the sale of the over-allotment shares. We
recently filed another registration statement on Form S-3 with the SEC to
register for resale up to 7.6 million shares of our common stock held
by Thermo Electron. This registration statement is expected to become effective
on or about August 14, 2002. We will not receive any proceeds from the sale of
any of these shares. As of June 29, 2002, Thermo Electron owned approximately
14% of our total outstanding common stock.

The Merger was accounted for under the purchase method of accounting and
was treated as a reverse acquisition because the shareholders of TCA owned the
majority of our common stock after the Merger. TCA was deemed the acquiror for
accounting and financial reporting purposes.

Due to the nature of the reverse acquisition, Thoratecs assets and
liabilities were recorded based upon their estimated fair values at the date of
acquisition. As of June 29, 2002, approximately $308.2 million of the purchase
price of $346.2 million has been allocated to goodwill and other purchased
intangible assets. As a result of the Merger, $76.9 million relating to IPR&D
as expensed upon completion of the Merger. Current estimates and assumptions related to the valuation of IPR&D remain materially
consistent with our initial estimates performed at the time of the Merger.

Through the end of 2001, goodwill
and other intangibles were amortized over their estimated useful lives of six
to twenty years. Beginning in 2002, we adopted Statement of Financial
Accounting Standards, or SFAS, No. 142, Goodwill and Other Intangible Assets.
SFAS No. 142 requires companies to cease amortizing goodwill that existed at
June 30, 2001 and also establishes a new method of testing goodwill for
impairment on an annual basis or on an interim basis if an event occurs or
circumstances change that would reduce the fair value of a reporting unit below
its carrying value. As such, at the beginning of 2002, we stopped amortizing
goodwill and began testing goodwill for impairment under the new standard. We completed our transitional goodwill impairment test
as of December 30, 2001 and determined that no adjustment to the carrying value of goodwill was needed. If any future impairment
occurs, such impairment could harm our future results of operations.
The adoption of SFAS No. 142 will result in a decrease in goodwill amortization
of approximately $5.0 million in 2002.

Restructuring Plan

In June 2001, we approved a plan to consolidate all of our Cardiovascular
product manufacturing operations to our manufacturing facilities and
headquarters in Pleasanton, California, which we refer to as the Restructuring
Plan. The restructuring initiatives, which commenced in 2001, are expected to
achieve operating efficiencies and result in substantial cost savings. Substantially all of the
milestones related to the relocation that are under our control have been
completed. Because our products
are regulated by the FDA, it is estimated it will take an additional six months
to complete the FDA review and certification process before all of the
products being transferred can be manufactured in Pleasanton. The
timing of these events is consistent with estimates made at the
inception of the Restructuring Plan. From
the inception of the Restructuring Plan through June 29, 2002, we have recorded
$1.6 million of restructuring charges in accordance with EITF No. 94-3, and Staff Accounting Bulletin No. 100,
Restructuring and Impairment Charges. These charges represent estimated
employee severance costs and stock option acceleration charges. Since the announcement
of the Restructuring Plan in the second quarter of 2001, we have paid
approximately $0.5 million in severance payments to 31 employees.

Results of Operations

Three months ended June 2002 and 2001

Product Sales

Product sales in the second quarter of 2002 were $31.0 million compared to
$28.2 million in the second quarter of 2001, an increase of approximately $2.8
million or 10%. This increase is attributable to higher domestic sales of VAD
products of $1.1 million, higher sales of graft products of
$0.7 million, and higher sales of blood coagulation testing equipment of $1.0
million.

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Gross Profit

Gross profit was $17.8 million, representing approximately 57% of product
sales, for the second quarter of 2002 compared to $15.6 million, representing
approximately 55% of product sales, for the second quarter of 2001. The
increase in gross profit percentage was as a result of higher average selling
prices due to a higher proportion of domestic sales to total product
sales, product price increases, and favorable foreign exchange rates.

Selling, General and Administrative

Selling, general and administrative expenses increased to $9.8 million, or
32% of product sales, in the second quarter of 2002, from $8.3 million, or 30%
of product sales, in the second quarter of 2001, an increase of $1.5 million or
19%. Selling and marketing expenses increased as a result of
promotional activities and new product introduction by International
Technidyne Corporation, or ITC, and costs to expand product markets
for our blood coagulation testing equipment and VADs. Corporate and
administrative expenses increased due to higher legal, patent, and
corporate stock expenses as well as higher employee-related expenses.
These increases were partially offset by lower headcount
related expenses in the Cardiovascular sales force subsequent to the Merger.

Research and Development

Research and
development expenses decreased to $6.1 million, or 20% of
product sales, in the second quarter of 2002, from $6.4 million, or 23% of
product sales, in the second quarter of 2001, a decrease of $0.3 million, or
5%. This decrease was attributable principally to lower spending on
certain VAD development programs as well as lower spending related to the
REMATCH clinical trials.

Amortization of Goodwill and Purchased Intangible Assets

Amortization of identified purchased intangible assets was $3.1 million in
the second quarter of 2002, or 10% of product sales, as compared to $3.3
million, or 12% of product sales, in the second quarter of 2001. As of June 29,
2002, goodwill of $101.2 million and intangible assets of $206.9 million have
been recorded as a result of our Merger. The intangible assets are being
amortized over their estimated useful lives of eight to twenty years.
We stopped amortizing goodwill at the beginning of fiscal year 2002 in accordance
with SFAS No. 142, and we expect that the adoption of SFAS No. 142 will result in a
decrease in goodwill amortization of approximately $5.0 million in 2002
compared to 2001.

Merger and Restructuring Costs

Merger and restructuring costs in the second quarter of 2002 were $0.5
million, compared to $1.6 million in the second quarter of 2001. This decrease
was due to a $0.6 million decrease in merger costs, principally related to lower
employee retention costs, and outside consulting, accounting, and legal
expenses, and a $0.5 million decrease in restructuring costs, representing lower
estimated severance and stock option acceleration costs related to the consolidation
of our VAD manufacturing operations.

Interest and Other Income  Net

Interest and other income-net was $0.9 million in the second quarter of
2002 compared to $0.6 million in the second quarter of 2001.
This increase was principally due to reduced interest expense related to the subordinated convertible debentures as those debentures were
redeemed in the first quarter 2002 and favorable exchange rate
transaction gains, partially
offset by a reduction in interest income caused by both lower cash balances and
lower interest rates.

Income Taxes

Our effective tax benefit rate was 40% for the three months ended June 29,
2002. For the three months ended June 30, 2001, our effective tax benefit rate
was 34%. The effective tax benefit rate for 2002 differed from the statutory
federal income tax rate primarily due to the impact of state income taxes.

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At June 29, 2002 and December 29, 2001, we reported a net deferred tax
liability of approximately $56.3 million and $59.0 million, respectively,
comprised principally of temporary differences between the financial statement and
income tax bases of intangible assets.

Six months ended June 2002 and 2001

Product Sales

Product sales in the first six months of 2002 were $60.7 million compared
to $49.7 million in first six months of 2001, an increase of approximately
$11.0 million or 22%. Product sales for the first six months of 2001 included
TCAs sales for the full six-month period of 2001 and Thoratecs sales for the
post-merger period from February 14, 2001 through June 30, 2001. Had Thoratec
sales been included for the full six-month period of 2001, the increase in
sales would have been $7.4 million or 14%. This increase is attributable to
higher domestic sales of VAD products of $4.7 million, higher sales of graft
products of $1.0 million, and higher sales of blood coagulation
testing equipment of $1.7 million.

Gross Profit

Gross profit was $34.2 million, representing approximately 56% of product
sales for the first six months of 2002 compared to $27.0 million, representing
approximately 54% of product sales for the first six months of 2001. The
increase in gross profit percentage was a result of higher average selling
prices due to a higher proportion of domestic sales to total product
sales, product price increases, and favorable foreign exchange rates.

Selling, General and Administrative

Selling, general and administrative expenses increased to $18.6 million,
or 31% of product sales, in the first six months of 2002 from $15.6 million,
or 32% of product sales, in the first six months of 2001, an increase of $2.9
million or 19%. Selling, general, and administrative expenses for the first six
months of 2001 included TCAs expenses for the full six-month period and
Thoratecs expenses only for the post-merger period from
February 14, 2001 through
June 30, 2001. Had Thoratecs selling, general and administrative expenses been
included for the full six-month period, these expenses would have increased by
$1.3 million or 7%. Selling and marketing expenses increased as a result of
promotional activities and new product introduction by ITC and costs to expand product markets
for our blood coagulation testing equipment and VADs. Corporate and
administrative expenses increased due to higher legal, patent, and
corporate stock expenses as well as higher employee-related expenses.
These increases were partially offset by lower headcount related
expenses in the Cardiovascular sales force subsequent to the Merger.

Research and Development

Research and development expenses increased to $13.0 million, or 21% of
product sales, in the first six months of 2002, from $11.7 million, or 24% of
product sales, in the first six months of 2001, an increase of $1.3 million, or
11%. Research and development expenses for the first six months of 2001
included TCAs expenses for the full six-month period, and Thoratec expenses
only for the post-merger period from February 14, 2001 through June 30, 2001. Had
Thoratecs research and development expenses been included for the full
six-month period, these expenses would have increased by $0.3 million, or 3%.
This increase was attributable principally to higher spending on
certain VAD development programs partially offset by lower spending related to the REMATCH
clinical trials.

Amortization of Goodwill and Purchased Intangible Assets

Amortization of identified purchased intangible assets was $6.2 million in
the first six months of 2002, or 10% of product sales, as compared to $4.9
million, or 10% of product sales, in the first six months of 2001. Although we
have stopped amortizing goodwill at the beginning of fiscal year 2002 in
accordance with SFAS No. 142, amortization expense was higher in the first six
months of 2002 compared to the first six months of 2001 due to six full months
of amortization included in 2002 compared to only four and a half months of
amortization included in 2001 subsequent to the February 14, 2001 merger date.
As of June 29, 2002, goodwill of $101.2 million and intangible assets of $206.9
million have been recorded as a result of our Merger. The intangible assets are
being amortized over their estimated useful lives of eight to twenty years. We
expect that the adoption of SFAS No. 142 will result in a decrease in goodwill
amortization of approximately $5.0 million in 2002 compared to 2001.

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In-process Research and Development Costs

In-process research and development, or IPR&D, expense in the first six
months of 2001 was $76.9 million, and represents the one-time write-off of
nonrecurring charges associated with our Merger for technology that had not
reached technological feasibility, had no alternative future use and for which
successful development was uncertain.

Merger and Restructuring Costs

Merger and restructuring costs in the first six months of 2002 were $0.8
million, compared to $5.1 million in the first six months of 2001. This
decrease was due to a $4.0 million decrease in merger costs, principally
related to lower employee retention costs, and outside consulting, accounting, and
legal expenses, and lower restructuring costs of $0.3 million, representing
lower estimated employee severance and stock option acceleration costs related to the consolidation
of our VAD manufacturing operations.

Interest and Other Income  Net

Interest and other income-net was $1.0 million in the first six months of
2002 compared to $1.7 million in the first six months of 2001, a decrease of
$0.7 million, or 42%. This decrease was principally due to a reduction in
interest income caused by both lower cash balances and lower interest rates,
partially offset by reduced interest expense on the subordinated
convertible debentures which were redeemed in the first quarter of 2002 and
favorable exchange rate transaction gains.

Income Taxes

Our effective tax benefit rate was 40% for the six months ended June 29,
2002. For the six months ended June 30, 2001, our effective tax benefit rate
was 2%. The effective tax benefit rate for 2002 differed from the statutory
federal income tax rate primarily due to the impact of state income taxes. The
effective tax benefit rate for 2001 differed from the statutory federal income
tax rate primarily due to the nondeductible nature of expenses related to our
merger with TCA, including the write-off of in-process research and development
costs, the amortization of goodwill and other nondeductible merger transaction
expenses.

At June 29, 2002 and December 29, 2001, we reported a net deferred tax
liability of approximately $56.3 million and $58.6 million, respectively,
comprised principally of temporary differences between financial statement and
income tax bases of intangible assets.

Extraordinary Item

We completed the redemption of our outstanding subordinated debentures on
March 11, 2002 using restricted cash and cash equivalents of $45.9 million and
cash of $9.8 million, which included $0.8 million in accrued interest. In the
first six months of 2002, we recorded an extraordinary loss of $0.3 million,
net of a tax benefit of $0.2 million, related to the write-off of capitalized
debt issuance costs associated with the initial issuance of the debentures,
which were being amortized over the life of the debentures.

Liquidity and Capital Resources

At June 29, 2002, we had working capital of $141.9 million compared with
$135.9 million at December 29, 2001. Cash and cash equivalents at June 29, 2002
were $88.3 million compared to $91.7 million at December 29, 2001, a decrease
of $3.4 million. This decrease was due principally to the payment of $9.0
million towards the redemption of our outstanding subordinated debentures, $6.0
million on stock repurchases, capital expenditures of $3.7 million and
increases in inventories of $7.0 million related to the planned relocation of
the Woburn manufacturing facility to Pleasanton and preparation for increasing
sales, partially offset by $15.4 million net proceeds received from the
issuance of our common stock, and higher accounts receivable collections.

The Statement of Cash Flows for the six months ended June 30, 2001 was
prepared by combining TCAs balance sheet as of December 2000 with Thoratecs
balance sheet as of the merger date of February 14, 2001, and comparing it to
the consolidated balance sheet as of June 30, 2001, which included both
entities. During the first six months of 2002, $1.0 million was used in
operations compared to $9.6 million of cash used in operations for the first
six months of 2001. Uses of cash for the first six months of 2002 included $7.0 million for higher inventory
levels in anticipation of increasing sales and preparation for the relocation
of the Woburn manufacturing operations to Pleasanton partially offset by an increase in collections on receivables.

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During the first six months of 2002, $12.6 million of cash was used in our
investing activities compared to $15.8 million of cash used in the first six
months of 2001. During the first six months of 2002, approximately $9.0 million of cash was used in the redemption
of $54.8 million of convertible debentures, net of the reclassification of
$45.9 million of restricted cash and approximately $3.7 million of cash was used
for capital expenditures.

During the first six months of 2002, $10.0 million of cash was provided by
financing activities compared to $1.3 million of cash used in the first six months of 2001. In the first six months of 2002, cash provided from the issuance of common stock in an
underwritten public stock offering was $15.4 million and $0.6 million was
received from exercises of stock options. This amount was partially offset by
$6.0 million used to repurchase our common stock, representing 653,000 shares,
which were subsequently retired.

We believe that cash on-hand, short term available-for-sale investments
and expected cash flow from operations will be sufficient to fund our
operations and capital requirements for the foreseeable future. We expect that
our operating expenses will increase in future periods as we spend more on
product manufacturing, marketing and research and development of new product
lines as well as substantial costs associated with the consolidation of our VAD
manufacturing operations.

The impact of inflation on our financial position and results of
operations was not significant during the three and six-month periods ended
June 2002 and June 2001.

Critical Accounting Policies

We have identified certain accounting policies as critical to our business
operations and the understanding of our results of operations. The impact and
associated risks related to those policies on our business operations is
discussed below and in our fiscal 2001 consolidated financial statements filed with the
SEC in our annual report on Form 10-K.

As of the beginning of fiscal year 2002, we adopted Statement of Financial
Accounting Standards, or SFAS, No. 142, Goodwill and Other Intangible Assets,
which addresses the financial accounting and reporting standards for the
acquisition of intangible assets outside of a business combination and for
goodwill and other intangible assets subsequent to their acquisition. This
accounting standard requires that goodwill be separately disclosed from other
intangible assets in the statement of financial position, and no longer be
amortized but tested for impairment on a periodic basis. The provisions of this
accounting standard also require the completion of a transitional impairment
test within six months of adoption, with any impairments identified treated as
a cumulative effect of a change in accounting principle. We have completed our
transitional goodwill impairment test as of December 30, 2001 and determined
that no adjustment to the carrying value of the goodwill and purchased
intangible assets was needed. On an ongoing basis, absent any impairment
indicators, we expect to perform a goodwill impairment test during the fourth
quarter of each year. We discontinued the amortization of goodwill effective as of the beginning of fiscal year 2002.

On March 11, 2002 we completed the redemption of our outstanding
subordinated convertible debentures at par plus accrued interest. Upon the
closing of the Merger with TCA in February 2001, $45.0 million in cash and cash
equivalents was pledged as collateral for a letter of credit guarantee to
Thermo Electron related to Thermo Electrons guarantee of our subordinated
debentures. As a result of the redemption, the letter of credit guarantee to
Thermo Electron was extinguished and the full amount of the restricted cash and cash equivalents was used in the redemption.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK

Short-Term Investments

We do not use derivative financial instruments for speculative or trading
purposes. However, we are exposed to market risk related to changes in interest
rates. Our investment portfolio at the end of 2001 consisted of short-term
state and municipal government bonds and money market funds that are classified
as cash and cash equivalents and have maturities of three months or less. The
fair market value of these investments will fall if market interest rates
increase. If market interest rates were to increase by 10% from levels at June
29, 2002, the fair market value of our investment portfolio would decline by an
immaterial amount.

Foreign Currency Rate Fluctuations

We conduct business in foreign countries. Our international operations
consist primarily of sales and service personnel for our ventricular assist
products. The employees report into our U.S. sales and marketing group and are
internally reported as part of that group. All assets and liabilities of our
non-U.S. operations are translated into U.S. dollars at the period-end exchange
rates. The resulting translation adjustments are included in comprehensive
income. The period-end translation of the non-functional currency balances (the
result of foreign sales, foreign expenses, and intercompany transactions) in
our wholly owned subsidiary in the United Kingdom at the period-end exchange
rate into the functional currency of our subsidiary results in foreign currency
exchange gains and losses. These foreign currency exchange gains and losses are
included in interest and other income-net and were not material for
the three and six-month periods ended June 29, 2002 and
June 30, 2001. Currently, we do not expect to be subject to material foreign currency risk
with respect to future costs or cash flows from our foreign operations. To
date, we have not entered into any significant foreign currency hedging
contracts or other derivative financial instruments to hedge the effects of
adverse fluctuations in foreign currency exchange, however, we are currently
evaluating possible future use of such contracts and instruments.

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PART II. OTHER INFORMATION




ITEM 2. CHANGES IN SECURITIES

None.




ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY SHAREHOLDERS

The annual meeting of Shareholders was held on May 31, 2002. The following
items were voted upon and approved at the meeting:

To elect directors to serve for the ensuing year until their successors are
elected.

|                       |  |                 |            |          |  |  |           | 
|---------------------- |  | --------------- | ---------- | -------- |  |  | --------- | 
|                       |  | Number of Votes
|                       |  |                
|                       |  | For             |            | Withheld
|                       |  |                 |            |         
|Howard E. Chase        |  |                 | 51,647,168 |          |  |  | 2,550,784 | 
|J. Daniel Cole         |  |                 | 51,648,435 |          |  |  | 2,549,517 | 
|D. Keith Grossman      |  |                 | 46,022,557 |          |  |  | 8,175,395 | 
|J. Donald Hill         |  |                 | 51,825,446 |          |  |  | 2,372,506 | 
|William M. Hitchcock   |  |                 | 51,647,294 |          |  |  | 2,550,658 | 
|George W. Holbrook Jr. |  |                 | 51,830,718 |          |  |  | 2,367,234 | 
|Theo Melas-Kyriazi     |  |                 | 51,823,659 |          |  |  | 2,374,293 | 
|Daniel M. Mulvena      |  |                 | 51,829,917 |          |  |  | 2,368,035 | 

To approve the Thoratec Employee Stock Purchase Plan as described in the
Proxy Statement.

|                |  |         |           |         |  |           |         |  |  |  |            | 
|--------------- |  | ------- | --------- | ------- |  | --------- | ------- |  |  |  | ---------- | 
|Number of Votes |  |         |           |        
|                |  |         |           |        
|For             |  | Against |           | Abstain |  | Not Voted
|                |  |         |           |         |  |          
|39,225,337      |  |         | 2,566,305 |         |  |           | 188,910 |  |  |  | 12,217,400 | 




ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits:



| | 99.1 |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
| | ---- |  | ----------------------------------------------------------------------------------------------------------------------

(b)  Reports on Form 8-K:



| | 1. |  | Current report filed on form 8-K on May 2, 2002 (File no. 000-49798)
to describe the Shareholders Rights Plan:
| | -- |  | --------------------------------------------------------------------------------------------------------------

|        |  |              
|------- |  | -------------
|Item 5: |  | Other events.
|Item 7: |  | Exhibits.    

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SIGNATURES

In accordance with the requirements of the Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

|                      |  |                                                                                                                                                   
|--------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------
|                      |  | THORATEC CORPORATION                                                                                                                              
|                     
|Date: August 12, 2002 |  | /s/ D. Keith Grossman
D. Keith Grossman,
Chief Executive Officer                                                                                  
|                     
|Date: August 12, 2002 |  | /s/ M. Wayne Boylston
M. Wayne Boylston,
Senior Vice President,
Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)

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