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

FORM 10-Q

(Mark one)

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

For the quarterly period ended March 30, 2002
or

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

for the transition period from __________ to ___________

COMMISSION FILE NUMBER: 1-8145

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

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

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

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 x   No o

As of May 13,
2002, registrant had 56,793,988 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   
|                              | 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 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURES                   



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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 March 30, 2002 and December 29,
          2001                                     | 3
|                                        |                                                                                                                   | Condensed
          Consolidated Statements of Operations for the Three Months Ended March 30,
          2002 and March 31, 2001         | 4
|                                        |                                                                                                                   | Condensed
          Consolidated Statements of Cash Flows for the Three Months Ended March 30,
          2002 and March 31, 2001         | 5
|                                        |                                                                                                                   | Condensed
          Consolidated Statements of Comprehensive Loss for the Three Months Ended
          March 30, 2002 and March 31, 2001 | 6
|                                        |                                                                                                                   | Notes
          to Condensed Consolidated Financial Statements                                                                           | 7
|                                        | Item 2.
          Managements Discussion and Analysis of Financial Condition and
          Results of Operations | 17                                                                                                                                      
|                                        | Item 3.
          Quantitative and Qualitative Disclosure About Market Risk                                       | 23                                                                                                                                      
|Part II.
          Other Information    | 24                                                                                                               
|                                        | Item 6.
          Exhibits and Reports on Form 8-K                                                                | 24                                                                                                                                      
|Signatures                              | 25                                                                                                               

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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)

|                                                                                     |                                                                                             |                                            |                                            |         |           |         |              |         |         |         |  
|------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------- | ------------------------------------------ | ------------------------------------------ | ------- | --------- | ------- | ------------ | ------- | ------- | ------- | -
|                                                                                     |                                                                                             |                                            |                                            |         | March 30, |         | December 29,
|                                                                                     |                                                                                             |                                            |                                            |         | 2002      |         | 2001        
|                                                                                     |                                                                                             |                                            |                                            |         |           |         |             
|Assets                                                                               |                                                                                             |                                            |                                            |         |           |         |              |        
|Current Assets:                                                                      |                                                                                             |                                            |                                            |         |           |         |              |        
|                                                                                     | Cash and cash equivalents                                                                   |                                            | $                                          | 92,867  |           |         | $            | 91,726  |        
|                                                                                     | Receivables, net of allowances of $337 in 2002 and $551 in 2001                             |                                            |                                            | 23,610  |           |         |              | 26,988  |        
|                                                                                     | Inventories                                                                                 |                                            |                                            | 29,050  |           |         |              | 25,673  |        
|                                                                                     | Deferred tax asset                                                                          |                                            |                                            | 12,703  |           |         |              | 11,789  |        
|                                                                                     | Prepaid expenses and other                                                                  |                                            |                                            | 1,715   |           |         |              | 788     |        
|                                                                                     |                                                                                             |                                            |                                            |         |           |         |              |        
|                                                                                     |                                                                                             | Total Current Assets                       |                                            |         | 159,945   |         |              |         | 156,964 |        
|                                                                                     |                                                                                             |                                            |                                            |         |           |         |              |        
|Property, plant and equipment                                                        |                                                                                             |                                            | 22,484                                     |         |           |         | 22,645       |        
|Restricted cash and cash equivalents                                                 |                                                                                             |                                            |                                           |         |           |         | 45,884       |        
|Goodwill                                                                             |                                                                                             |                                            | 96,492                                     |         |           |         | 95,209       |        
|Purchased intangible assets                                                          |                                                                                             |                                            | 193,353                                    |         |           |         | 198,608      |        
|Long-term deferred tax asset                                                         |                                                                                             |                                            | 9,313                                      |         |           |         | 9,313        |        
|Other assets                                                                         |                                                                                             |                                            | 1,092                                      |         |           |         | 1,618        |        
|                                                                                     |                                                                                             |                                            |                                            |         |           |         |              |        
|                                                                                     |                                                                                             | Total Assets                               |                                            | $       | 482,679   |         |              | $       | 530,241 |        
|                                                                                     |                                                                                             |                                            |                                            |         |           |         |              |        
|Liabilities and Shareholders Equity                                                 |                                                                                             |                                            |                                            |         |           |         |              |        
|Current Liabilities:                                                                 |                                                                                             |                                            |                                            |         |           |         |              |        
|                                                                                     | Accounts payable                                                                            |                                            | $                                          | 6,472   |           |         | $            | 8,271   |        
|                                                                                     | Accrued expenses                                                                            |                                            |                                            | 8,260   |           |         |              | 11,434  |        
|                                                                                     | Accrued merger and restructuring                                                            |                                            |                                            | 881     |           |         |              | 1,335   |        
|                                                                                     |                                                                                             |                                            |                                            |         |           |         |              |        
|                                                                                     |                                                                                             |                                            | Total Current Liabilities                  |         |           | 15,613  |              |         |         | 21,040  |  
|                                                                                     |                                                                                             |                                            |                                            |         |           |         |              |        
|Subordinated convertible debentures (includes $1,500 due to Thermo Electron
in 2001) |                                                                                             |                                            |                                           |         |           |         | 54,838       |        
|Long-term deferred tax liability and other                                           |                                                                                             |                                            | 80,075                                     |         |           |         | 81,020       |        
|                                                                                     |                                                                                             |                                            |                                            |         |           |         |              |        
|                                                                                     |                                                                                             |                                            | Total Liabilities                          |         |           | 95,688  |              |         |         | 156,898 |  
|                                                                                     |                                                                                             |                                            |                                            |         |           |         |              |        
|Shareholders Equity:                                                                |                                                                                             |                                            |                                            |         |           |         |              |        
|                                                                                     | Common shares; 100,000 authorized;
issued and outstanding 57,067 in 2002
and 56,114 in 2001 |                                            |                                            | 424,798 |           |         |              | 409,081 |        
|                                                                                     | Deferred compensation                                                                       |                                            |                                            | (4,276  | )         |         |              | (4,555  | )      
|                                                                                     | Retained earnings (accumulated deficit)                                                     |                                            |                                            | (33,505 | )         |         |              | (31,166 | )      
|                                                                                     | Accumulated other comprehensive loss:                                                       |                                            |                                            |         |           |         |              |         |        
|                                                                                     |                                                                                             | Cumulative translation adjustments         |                                            |         | (26       | )       |              |         | (17     | )      
|                                                                                     |                                                                                             |                                            |                                            |         |           |         |              |        
|                                                                                     |                                                                                             |                                            | Total accumulated other comprehensive loss |         |           | (26     | )            |         |         | (17     | )
|                                                                                     |                                                                                             |                                            |                                            |         |           |         |              |        
|                                                                                     |                                                                                             |                                            | Total Shareholders Equity                 |         |           | 386,991 |              |         |         | 373,343 |  
|                                                                                     |                                                                                             |                                            |                                            |         |           |         |              |        
|                                                                                     |                                                                                             | Total Liabilities and Shareholders Equity |                                            | $       | 482,679   |         |              | $       | 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
|                                                                                          |                                                          |   |                   
|                                                                                          |                                                          |   | March 30,          |        | March 31,
|                                                                                          |                                                          |   | 2002               |        | 2001     
|                                                                                          |                                                          |   |                    |        |          
|Product sales                                                                             |                                                          | $ | 29,639             |        |           | $ | 21,480  |       
|Cost of product sales                                                                     |                                                          |   | 13,164             |        |           |   | 10,040  |       
|                                                                                          |                                                          |   |                    |        |           |   |         |       
|Gross profit                                                                              |                                                          |   | 16,475             |        |           |   | 11,440  |       
|                                                                                          |                                                          |   |                    |        |           |   |         |       
|Operating expenses:                                                                       |                                                          |   |                    |        |           |   |         |       
|                                                                                          | Selling, general and administrative                      |   |                    | 8,719  |           |   |         | 7,330  | 
|                                                                                          | Research and development                                 |   |                    | 6,903  |           |   |         | 5,230  | 
|                                                                                          | Amortization of goodwill and purchased intangible assets |   |                    | 3,096  |           |   |         | 2,281  | 
|                                                                                          | In-process research and development                      |   |                    |       |           |   |         | 76,858 | 
|                                                                                          | Merger and restructuring costs                           |   |                    | 321    |           |   |         | 3,540  | 
|                                                                                          |                                                          |   |                    |        |           |   |         |       
|                                                                                          | Total operating expenses                                 |   |                    | 19,039 |           |   |         | 95,239 | 
|                                                                                          |                                                          |   |                    |        |           |   |         |       
|Loss from operations                                                                      |                                                          |   | (2,564             | )      |           |   | (83,799 | )     
|Interest and other income  net                                                           |                                                          |   | 147                |        |           |   | 1,144   |       
|                                                                                          |                                                          |   |                    |        |           |   |         |       
|Loss before income tax benefit and extraordinary item                                     |                                                          |   | (2,417             | )      |           |   | (82,655 | )     
|Income tax benefit                                                                        |                                                          |   | (968               | )      |           |   | (475    | )     
|                                                                                          |                                                          |   |                    |        |           |   |         |       
|Loss before extraordinary item                                                            |                                                          |   | (1,449             | )      |           |   | (82,180 | )     
|Extraordinary item  loss on early extinguishment of debt,
net of $206 income tax benefit |                                                          |   | (309               | )      |           |   |        |       
|                                                                                          |                                                          |   |                    |        |           |   |         |       
|Net loss                                                                                  |                                                          | $ | (1,758             | )      |           | $ | (82,180 | )     
|                                                                                          |                                                          |   |                    |        |           |   |         |       
|Loss per share, basic and diluted                                                         |                                                          | $ | (0.03              | )      |           | $ | (1.88   | )     
|                                                                                          |                                                          |   |                    |        |           |   |         |       
|Shares used to compute loss per share, basic and diluted                                  |                                                          |   | 56,650             |        |           |   | 43,719  |       

See notes to condensed consolidated financial statements.

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THORATEC CORPORATION AND SUBSIDIARIES




CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)

|                                                                                 |                                                                             |                                        |                                                     |         |                    |         |           |          |        |         |  
|-------------------------------------------------------------------------------- | --------------------------------------------------------------------------- | -------------------------------------- | --------------------------------------------------- | ------- | ------------------ | ------- | --------- | -------- | ------ | ------- | -
|                                                                                 |                                                                             |                                        |                                                     |         | Three Months Ended
|                                                                                 |                                                                             |                                        |                                                     |         |                   
|                                                                                 |                                                                             |                                        |                                                     |         | March 30,          |         | March 31,
|                                                                                 |                                                                             |                                        |                                                     |         | 2002               |         | 2001     
|                                                                                 |                                                                             |                                        |                                                     |         |                    |         |          
|Cash
          flows from operating activities:                                  |                                                                             |                                        |                                                     |         |                    |         |           |         
|                                                                                 | Net loss                                                                    |                                        | $                                                   | (1,758  | )                  |         | $         | (82,180  | )     
|                                                                                 | Adjustments to reconcile net loss to net cash
used in operating activities: |                                        |                                                     |         |                    |         |           |          |       
|                                                                                 | Depreciation and amortization                                               |                                        |                                                     | 4,226   |                    |         |           | 3,226    |       
|                                                                                 | Write-off of in-process research and development costs                      |                                        |                                                     |        |                    |         |           | 76,858   |       
|                                                                                 | Amortization of deferred compensation                                       |                                        |                                                     | 279     |                    |         |           |         |       
|                                                                                 | Non cash compensation                                                       |                                        |                                                     | 61      |                    |         |           | 302      |       
|                                                                                 | Provision for losses on accounts receivable                                 |                                        |                                                     | (229    | )                  |         |           | 302      |       
|                                                                                 | Extraordinary loss on debt extinguishment                                   |                                        |                                                     | 515     |                    |         |           |         |       
|                                                                                 | Other noncash items                                                         |                                        |                                                     |         |                    |         |           | 95       |       
|                                                                                 | Changes in assets and liabilities:                                          |                                        |                                                     |         |                    |         |           |          |       
|                                                                                 |                                                                             | Receivables                            |                                                     |         | 3,368              |         |           |          | 3,006  |        
|                                                                                 |                                                                             | Inventories                            |                                                     |         | (3,129             | )       |           |          | (2,373 | )      
|                                                                                 |                                                                             | Prepaid expenses and other assets      |                                                     |         | (762               | )       |           |          | (89    | )      
|                                                                                 |                                                                             | Accounts payable and other liabilities |                                                     |         | (4,681             | )       |           |          | (2,492 | )      
|                                                                                 |                                                                             | Deferred liabilities                   |                                                     |         | (766               | )       |           |          | (558   | )      
|                                                                                 |                                                                             |                                        |                                                     |         |                    |         |           |         
|                                                                                 |                                                                             |                                        | Net cash used in operating activities               |         |                    | (2,876  | )         |          |        | (3,903  | )
|                                                                                 |                                                                             |                                        |                                                     |         |                    |         |           |         
|Cash
          flows from investing activities:                                  |                                                                             |                                        |                                                     |         |                    |         |           |         
|                                                                                 | Purchases of short-term available-for-sale investments                      |                                        |                                                     |        |                    |         |           | (136,312 | )     
|                                                                                 | Maturities of short-term available-for-sale investments                     |                                        |                                                     |        |                    |         |           | 107,901  |       
|                                                                                 | Sales of short-term available-for-sale investments                          |                                        |                                                     |        |                    |         |           | 52,753   |       
|                                                                                 | Repayment of convertible debentures                                         |                                        |                                                     | (54,838 | )                  |         |           |         |       
|                                                                                 | Reclassification from (to) restricted cash and cash equivalents             |                                        |                                                     | 45,883  |                    |         |           | (45,279  | )     
|                                                                                 | Capitalized transaction costs                                               |                                        |                                                     |        |                    |         |           | (5,838   | )     
|                                                                                 | Purchases of property, plant and equipment                                  |                                        |                                                     | (1,280  | )                  |         |           | (689     | )     
|                                                                                 | Cash acquired in business acquisition                                       |                                        |                                                     |        |                    |         |           | 3,456    |       
|                                                                                 |                                                                             |                                        |                                                     |         |                    |         |           |         
|                                                                                 |                                                                             |                                        | Net cash provided by (used in) investing activities |         |                    | (10,235 | )         |          |        | (24,008 | )
|                                                                                 |                                                                             |                                        |                                                     |         |                    |         |           |         
|Cash
          flows from financing activities:                                  |                                                                             |                                        |                                                     |         |                    |         |           |         
|                                                                                 | Common stock issued upon exercise of options                                |                                        |                                                     | 617     |                    |         |           | 109      |       
|                                                                                 | Common
stock issued in public placement  net                               |                                        |                                                     | 15,452  |                    |         |           |         |       
|                                                                                 | Repurchase of common stock                                                  |                                        |                                                     | (1,810  | )                  |         |           |         |       
|                                                                                 | Payment of withholding taxes related to employee stock plans                |                                        |                                                     |        |                    |         |           | (30      | )     
|                                                                                 |                                                                             |                                        |                                                     |         |                    |         |           |         
|                                                                                 |                                                                             |                                        | Net cash provided by financing activities           |         |                    | 14,259  |           |          |        | 79      |  
|                                                                                 | Effect of exchange rate changes on cash                                     |                                        |                                                     | (6      | )                  |         |           | 37       |       
|                                                                                 |                                                                             |                                        |                                                     |         |                    |         |           |         
|                                                                                 | Net increase in cash and cash equivalents                                   |                                        |                                                     | 1,142   |                    |         |           | (27,795  | )     
|                                                                                 | Cash and cash equivalents at beginning of period                            |                                        |                                                     | 91,725  |                    |         |           | 30,236   |       
|                                                                                 |                                                                             |                                        |                                                     |         |                    |         |           |         
|                                                                                 | Cash and cash equivalents at end of period                                  |                                        | $                                                   | 92,867  |                    |         | $         | 2,441    |       
|                                                                                 |                                                                             |                                        |                                                     |         |                    |         |           |         
|Supplemental
          Cash Flow Disclosure:                                     |                                                                             |                                        |                                                     |         |                    |         |           |         
|                                                                                 | Cash paid for taxes                                                         |                                        | $                                                   | 54      |                    |         | $         | 263      |       
|                                                                                 | Cash paid for interest                                                      |                                        |                                                     | 839     |                    |         |           |         |       
|Supplemental
          Disclosure of Noncash 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
|                                       |                                          |   |                   
|                                       |                                          |   | March 30,          |    | March 3l,
|                                       |                                          |   | 2002               |    | 2001     
|                                       |                                          |   |                    |    |          
|Net loss                               |                                          | $ | (1,738             | )  |           | $ | (82,180 | )  
|Other net comprehensive income (loss): |                                          |   |                    |    |           |   |         |    
|                                       | Unrealized gain on securities            |   |                    |   |           |   |         | 39  |  
|                                       | Foreign currency translation adjustments |   |                    | (9 | )         |   |         | (49 | )
|                                       |                                          |   |                    |    |           |   |         |    
|Comprehensive loss                     |                                          | $ | (1,767             | )  |           | $ | (82,190 | )  
|                                       |                                          |   |                    |    |           |   |         |    

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 March 30, 2002 and
December 29, 2001, our results of operations for the three-month periods ended
March 30, 2002 and March 31, 2001 and cash flows for the three-month periods
ended March 30, 2002 and March 31, 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. (TCA) was completed on
February 14, 2002, 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-month period ended March 31, 2001 and the financial results of
Thoratec for the post-merger period from February 14, 2001 through March 31,
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.

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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 March 30, 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 purchased 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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The unaudited consolidated results of operations on a pro forma basis as
if the merger had occurred as of the beginning of 2001 is presented as follows
for the period ended March 31, 2001:

|                                       |  |                    |         |  
|-------------------------------------- |  | ------------------ | ------- | -
|                                       |  | Three Months Ended
|                                       |  | March 31,         
|                                       |  | 2001              
|                                       |  |                   
|Revenue                                |  | $                  | 25,004  |  
|Net loss                               |  | $                  | (86,092 | )
|Net loss per share  basic and diluted |  | $                  | (1.57   | )

Net loss for the three-month period ended March 31, 2001
includes $4.9 million of merger and restructuring costs (see
Note 9), $4.5 million of amortization of goodwill and purchased intangibles, and $76.9 million of in-process
research and development expenses.

The pro forma financial information is presented for informational
purposes only and is not indicative of the operating results that would have
occurred had the Merger been consummated as of the above date, nor are they
necessarily indicative of future operating results.

3. New Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards, or SFAS, No. 141, Business
Combinations, which eliminates the pooling method of accounting for all
business combinations initiated after June 30, 2001 and addresses the initial
recognition and measurement of goodwill and other intangible assets acquired in
a business combination. We adopted SFAS No. 141 at the beginning of the 2002
fiscal year. In accordance with the transition provisions of SFAS No. 141, the
carrying amount of the intangible asset related to acquired assembled
workforce, net of related tax effects, which totaled $1.3 million, was
reclassified from identifiable intangible assets to goodwill effective as of
the beginning of fiscal year 2002, as this intangible asset no longer meets the
criteria for recognition apart from goodwill.

As of the beginning of fiscal year 2002, we also adopted 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 are in the process of performing our transitional
impairment test on goodwill.

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.

Had we been accounting for goodwill and certain other intangible assets
under SFAS No. 142 for all prior periods presented, our net income and loss per
common share would have been as follows for the three months ended March 31,
2001 (in thousands):

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|                                              |  |   |         |  
|--------------------------------------------- |  | - | ------- | -
|Reported net loss                             |  | $ | (82,180 | )
|Add back: Amortization expense, net of tax    |  |   | 631     |  
|                                              |  |   |         |  
|Adjusted net loss                             |  | $ | (81,529 | )
|                                              |  |   |         |  
|Reported basic and diluted net loss per share |  | $ | (1.88   | )
|Impact of amortization expense, net of tax    |  |   | 0.01    |  
|                                              |  |   |         |  
|Adjusted basic and diluted net loss per share |  | $ | (1.87   | )
|                                              |  |   |         |  

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 October 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 income statement 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 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 of $0.3 million
incurred in the first quarter ending March 30, 2002 to operating earnings.  The
provisions of this statement related to this are effective for fiscal years
beginning after May 15, 2002.

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4. Inventories

Inventories consist of the following (in thousands):

|                |       |   |           |        |              |   |        |        | 
|--------------- | ----- | - | --------- | ------ | ------------ | - | ------ | ------ | 
|                |       |   | As of    
|                |       |   |          
|                |       |   | March 30, |        | December 29,
|                |       |   | 2002      |        | 2001        
|                |       |   |           |        |             
|Finished goods  |       | $ | 17,144    |        |              | $ | 15,275 |       
|Work in process |       |   | 4,163     |        |              |   | 4,322  |       
|Raw materials   |       |   | 7,743     |        |              |   | 6,075  |       
|                |       |   |           |        |              |   |        |       
|                | Total |   | $         | 29,050 |              |   | $      | 25,673 | 
|                |       |   |           |        |              |   |        |       

5. Property, Plant and Equipment

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

|                                       |  |           |         |              |  |   |         |  
|-------------------------------------- |  | --------- | ------- | ------------ |  | - | ------- | -
|                                       |  | As of    
|                                       |  |          
|                                       |  | March 30, |         | December 29,
|                                       |  | 2002      |         | 2001        
|                                       |  |           |         |             
|Property, plant and equipment, at cost |  | $         | 42,220  |              |  | $ | 41,550  |  
|Less accumulated depreciation          |  |           | (19,736 | )            |  |   | (18,905 | )
|                                       |  |           |         |              |  |   |         |  
|                                       |  | $         | 22,484  |              |  | $ | 22,645  |  
|                                       |  |           |         |              |  |   |         |  

6. Goodwill and Other Intangible Assets

The change in the carrying amount of total goodwill, which is only
attributable to our Cardiovascular business segment, for the three months ended
March 30, 2002 was as follows (in thousands):

|                                                                   |  |   |        |  
|------------------------------------------------------------------ |  | - | ------ | -
|Balance as of December 29, 2001                                    |  | $ | 95,209 |  
|Reclassification of assembled workforce, net of taxes (see Note 3) |  |   | 1,334  |  
|Adjustment to reflect resolution of pre-merger contingency         |  |   | (31    | )
|                                                                   |  |   |        |  
|Balance as of March 30, 2002                                       |  | $ | 96,492 |  
|                                                                   |  |   |        |  

Our identifiable intangible assets are being amortized over their
estimated useful lives and are detailed below (in thousands):

|                             |  |                |         |              |  |              |         |   |  |   |         |  
|---------------------------- |  | -------------- | ------- | ------------ |  | ------------ | ------- | - |  | - | ------- | -
|                             |  | As of          |         | As of        |  | As of       
|                             |  | March 30, 2002 |         | March 30,    |  | December 29,
|                             |  |                |         | 2002         |  | 2001        
|                             |  | Gross          |         |              |  |             
|                             |  | Carrying       |         | Accumulated  |  | Accumulated 
|                             |  | Amount         |         | Amortization |  | Amortization
|                             |  |                |         |              |  |             
|Patents and trademarks       |  | $              | 37,478  |              |  | $            | (4,073  | ) |  | $ | (3,168  | )
|Assembled workforce (Note 3) |  |                |        |              |  |              |        |   |  |   | (381    | )
|Developed technology         |  |                | 132,301 |              |  |              | (7,443  | ) |  |   | (5,788  | )
|Core technology              |  |                | 37,181  |              |  |              | (2,091  | ) |  |   | (1,627  | )
|                             |  |                |         |              |  |              |         |   |  |   |         |  
|Total                        |  | $              | 206,960 |              |  | $            | (13,607 | ) |  | $ | (10,964 | )
|                             |  |                |         |              |  |              |         |   |  |   |         |  

Aggregate amortization expense related to these intangible assets
was $3.1 million and $1.6 million, respectively, for the three months ended
March 30, 2002 and March 31, 2001. At March 30, 2002, estimated future
amortization expense of identifiable

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intangible assets is $9.1 million for the remaining three quarters of 2002, and
$12.1 million in fiscal years 2003, 2004, 2005 and 2006,
respectively. These intangible assets have estimated remaining useful
lives of seven to 19 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 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 (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 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 the date of this report, Thermo Electron owns
approximately 14% of our total outstanding common stock.

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 three months ended March 30, 2002, we repurchased 165,000
shares of our common stock on the open market for $1.8 million. From the inception of the
program through the end of fiscal 2001, we had repurchased 192,700 shares of
our common stock for $1.7 million. All repurchased common stock has been retired.

9. Merger and Restructuring Costs

For the three months ended March 30, 2002 and March 31, 2001, the
following merger and restructuring expenses were recorded (in
thousands):

|              |  |                    |     |           |  |   |       | 
|------------- |  | ------------------ | --- | --------- |  | - | ----- | 
|              |  | Three Months Ended
|              |  |                   
|              |  | March 30,          |     | March 31,
|              |  | 2002               |     | 2001     
|              |  |                    |     |          
|Merger        |  | $                  | 137 |           |  | $ | 3,540 | 
|Restructuring |  |                    | 184 |           |  |   |      | 
|              |  |                    |     |           |  |   |       | 
|Total         |  | $                  | 321 |           |  | $ | 3,540 | 
|              |  |                    |     |           |  |   |       | 

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 March 30, 2002 consisted of
executive waiver agreement expenses. Merger costs recorded during the three
months ended March 31, 2001 consisted principally of employee severance,
pre-merger 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
three months ended March 30, 2002 (in thousands):

|                      |                                                 |   |              |      |  
|--------------------- | ----------------------------------------------- | - | ------------ | ---- | -
|                      |                                                 |   | Three Months
|                      |                                                 |   | Ended       
|                      |                                                 |   | March 30,   
|                      |                                                 |   | 2002        
|                      |                                                 |   |             
|Accrued Merger Costs: |                                                 |   |              |     
|Beginning balance     |                                                 | $ | 472          |     
|Add:                  |                                                 |   |              |     
|                      | Accruals
pursuant to executive waiver agreement |   |              | 137  |  
|Less:                 |                                                 |   |              |     
|                      | Payments
pursuant to executive waiver agreement |   |              | (811 | )
|                      |                                                 |   |              |     
|Ending balance        |                                                 | $ | (202         | )   
|                      |                                                 |   |              |     

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 expense of $811,000 is being amortized over the
18 month waiver period. As of March 30, 2002, the ending balance of accrued merger
costs has been reclassified to prepaid expenses and other in the accompanying
condensed consolidated balance sheet.

Restructuring Costs

In June 2001, we approved a restructuring plan (the Restructuring Plan),
to consolidate all of our Cardiovascular product manufacturing operations to
our manufacturing facilities and headquarters in Pleasanton, California. The
restructuring initiatives, which commenced in 2001, are expected to
achieve operating efficiencies and result in substantial cost savings. The Restructuring Plan specifically
provides for the reduction of approximately 90 of our manufacturing and related
workforce at our Woburn and Chelmsford, Massachusetts facilities. We notified
the affected employees during the second quarter of 2001, both through direct
personal contact and written notification. Our Chelmsford facility was closed
in February 2002. Our HeartMate® family of products, which are currently
manufactured at our Woburn facility, will be transitioned to our Pleasanton
facility. The restructuring activities are estimated to take
18 months because of FDA certification requirements for the
relocated
manufacturing operations in Pleasanton. Substantially all of the milestones
related to the relocation that are under our control will be completed within
12 months of the date of announcement. 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 the HeartMate products can be
manufactured in Pleasanton. We believe we can make a reasonable estimate of the
involuntary employee termination benefits since we have specifically identified
the employees that will be involuntarily terminated as well as the benefits
that each affected employee will receive. Management does not believe there
have been or are likely to be any developments during the intervening 18 months
required to relocate the manufacturing operations, which would have a
significant impact on our original restructuring cost estimates. Although the
relocation plan has been documented in detail, small changes in the timing of
specific activities are expected. The impact of these changes on our estimate
is not expected to be material. From the inception of the Restructuring Plan
through March 30, 2002, we have accrued $1.1 million of restructuring charges in
accordance with Emerging Issues Task Force 94-3, Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity and
Staff Accounting Bulletin 100, Restructuring and Impairment Charges. These
charges represent estimated severance costs and stock option
acceleration charges. Since the announcement of the Restructuring
Plan in the second quarter of 2001, we have paid
approximately $0.3 million in severance payments to 12 employees related to the
Restructuring Plan. The following is a summary of our accrued restructuring
costs activity for the three months ended March 30, 2002 (in thousands):

|                             |                                |   |              |      |  
|---------------------------- | ------------------------------ | - | ------------ | ---- | -
|                             |                                |   | Three Months
|                             |                                |   | Ended       
|                             |                                |   | March 30,   
|                             |                                |   | 2002        
|                             |                                |   |             
|Accrued Restructuring Costs: |                                |   |              |     
|Beginning balance            |                                | $ | 863          |     
|                             | Employee severance accrual     |   |              | 144  |  
|                             | Payments of employee severance |   |              | (126 | )
|                             |                                |   |              |     
|Ending balance               |                                | $ | 881          |     
|                             |                                |   |              |     

In addition to the employee severance, estimated restructuring costs
includes $40,000 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.

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10. Income Taxes

Our effective tax benefit rate was 40.0% for the three months ended March
30, 2002. For the three months ended March 31, 2001, our effective tax rate
was 0.6%. 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 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 March 30, 2002 and December 29, 2001, we reported a net deferred tax
liability of approximately $57.0 million and $59.0 million, respectively,
comprised principally of temporary differences between financial statement and
income tax bases of intangible assets.

11. Loss Per Share

Basic loss per share for 2002 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 the basic and diluted calculations of net loss per share.
Options to purchase 1,599,413 and 6,439,714 shares of common stock for the
three months ended March 30, 2002 and March 31, 2001, respectively, 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, were
excluded from the calculation of diluted earnings per share for the three
months ended March 31, 2001 and March 30, 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 Cardiovascular segment develops, manufactures, and
markets proprietary medical devices used for circulatory support and vascular
graft applications. The Other Medical Equipment segment develops, manufactures
and markets near-patient, whole-blood coagulation testing equipment and related
disposables, as well as premium quality, single-use, skin incision devices. 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-month period ended March 31, 2001 and the
financial results of Thoratecs Cardiovascular segment for only the post-merger
period from February 14, 2001 through March 31, 2001.

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Business Segments (in thousands):

|                                                 |                                                       |                                                 |   |                    |        |           |   |         |         |  
|------------------------------------------------ | ----------------------------------------------------- | ----------------------------------------------- | - | ------------------ | ------ | --------- | - | ------- | ------- | -
|                                                 |                                                       |                                                 |   | Three Months Ended
|                                                 |                                                       |                                                 |   |                   
|                                                 |                                                       |                                                 |   | March 30,          |        | March 31,
|                                                 |                                                       |                                                 |   | 2002               |        | 2001     
|                                                 |                                                       |                                                 |   |                    |        |          
|Product sales:                                   |                                                       |                                                 |   |                    |        |           |   |        
|                                                 | Cardiovascular                                        |                                                 | $ | 18,691             |        |           | $ | 11,188  |        
|                                                 | Other Medical Equipment                               |                                                 |   | 10,948             |        |           |   | 10,292  |        
|                                                 |                                                       |                                                 |   |                    |        |           |   |        
|                                                 |                                                       | Total product sales                             |   | $                  | 29,639 |           |   | $       | 21,480  |  
|                                                 |                                                       |                                                 |   |                    |        |           |   |        
|Loss before income taxes and
extraordinary item: |                                                       |                                                 |   |                    |        |           |   |        
|                                                 | Cardiovascular                                        |                                                 | $ | 128                |        |           | $ | (2,328  | )      
|                                                 | Other Medical Equipment                               |                                                 |   | 2,232              |        |           |   | 1,901   |        
|                                                 | Corporate (a)                                         |                                                 |   | (1,507             | )      |           |   | (693    | )      
|                                                 | Amortization
of goodwill and purchased intangibles(b) |                                                 |   | (3,096             | )      |           |   | (2,281  | )      
|                                                 | In-process research and development(b)                |                                                 |   |                   |        |           |   | (76,858 | )      
|                                                 | Merger and restructuring costs(b)                     |                                                 |   | (321               | )      |           |   | (3,540  | )      
|                                                 |                                                       |                                                 |   |                    |        |           |   |        
|                                                 |                                                       | Total operating loss                            |   |                    | (2,564 | )         |   |         | (83,799 | )
|                                                 | Interest and other income, net                        |                                                 |   | 147                |        |           |   | 1,144   |        
|                                                 |                                                       |                                                 |   |                    |        |           |   |        
|                                                 |                                                       | Loss before income taxes and extraordinary item |   | $                  | (2,417 | )         |   | $       | (82,655 | )
|                                                 |                                                       |                                                 |   |                    |        |           |   |        

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

Geographic Areas:

|               |                         |  |                    |        |           |  |   |        | 
|-------------- | ----------------------- |  | ------------------ | ------ | --------- |  | - | ------ | 
|               |                         |  | Three Months Ended
|               |                         |  |                   
|               |                         |  | March 30,          |        | March 31,
|               |                         |  | 2002               |        | 2001     
|               |                         |  |                    |        |          
|Product sales: |                         |  |                    |        |           |  |   |       
|               | Domestic                |  | $                  | 24,751 |           |  | $ | 16,943 | 
|               |                         |  |                    |        |           |  |   |       
|               | Europe                  |  |                    | 3,281  |           |  |   | 2,987  | 
|               | All other international |  |                    | 1,607  |           |  |   | 1,550  | 
|               |                         |  |                    |        |           |  |   |       
|               | Total international     |  |                    | 4,888  |           |  |   | 4,537  | 
|               |                         |  |                    |        |           |  |   |       
|               | Total                   |  | $                  | 29,639 |           |  | $ | 21,480 | 
|               |                         |  |                    |        |           |  |   |       

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13. Shareholder Rights Plan

On May 2, 2002, we adopted a shareholder rights plan. Under the
rights plan, we will distribute 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 have 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.

14. Employee Stock Purchase Plan

On May 2, 2002,
our Board of Directors approved, and we have submitted for
shareholders approval, an Employee Stock Purchase
Plan (the ESPP). This plan 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 March 30, 2002, 672 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 September
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.

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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
(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, our Annual Report
on Form 10-K for 2001 filed with the SEC on March 15, 2002 and our Registration
Statement filed on Form S-3, as amended and supplemented, filed with the SEC on
October 24, 2001.

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 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 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 (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 the 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. As of the
date of this report, Thermo Electron owns 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 March 30, 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. 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. If
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 restructuring plan (the Restructuring Plan),
to consolidate all of our Cardiovascular product manufacturing operations to
our manufacturing facilities and headquarters in Pleasanton, California. The
restructuring initiatives, which commenced in 2001, are expected to
achieve operating efficiencies and result in substantial cost savings. The Restructuring Plan specifically
provides for the reduction of approximately 90 of our manufacturing and related
workforce at our Woburn and Chelmsford, Massachusetts facilities. We notified
the affected employees during the second quarter of 2001, both through direct
personal contact and written notification. Our Chelmsford facility was closed
in February 2002. Our HeartMate® family of products, which are currently
manufactured at our Woburn facility, will be transitioned to our Pleasanton
facility. The restructuring activities are estimated to take
18 months because of FDA certification requirements for the
relocated
manufacturing operations in Pleasanton. Substantially all of the milestones
related to the relocation that are under our control will be completed within
12 months of the date of announcement. 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 the HeartMate products can be
manufactured in Pleasanton. We believe we can make a reasonable estimate of the
involuntary employee termination benefits since we have specifically identified
the employees that will be involuntarily terminated as well as the benefits
that each affected employee will receive. Management does not believe there
have been or are likely to be any developments during the intervening 18 months
required to relocate the manufacturing operations, which would have a
significant impact on our original restructuring cost estimates. Although the
relocation plan has been documented in detail, small changes in the timing of
specific activities are expected. The impact of these changes on our estimate
is not expected to be material. From the inception of the Restructuring Plan
through March 30, 2002, we have accrued $1.1 million of restructuring charges in
accordance with Emerging Issues Task Force 94-3, Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity and
Staff Accounting Bulletin 100, Restructuring and Impairment Charges. These
charges represent estimated severance costs and stock option
acceleration charges. Since the announcement of the Restructuring
Plan in the second quarter of 2001, we have paid
approximately $0.3 million in severance payments to 12 employees related to the
Restructuring Plan.

Results of Operations

First quarter 2002 and 2001

Product Sales

Product sales in the first quarter of 2002 were $29.6 million compared to
$21.5 million in the first quarter of 2001, an increase of approximately $8.1
million or 38%. Product sales for the first quarter of 2001 included TCAs
sales for the full three-month period of 2001 and Thoratec sales for the
post-merger period from February 14, 2001 through March 31, 2001. Had Thoratec
sales been included for the full three-month period of 2001, the increase in
sales would have been $4.6 million or 19%. This increase is attributable to
higher domestic sales of VAD and HeartMate products of $4.0 million, in
addition to higher sales of blood coagulation testing equipment of $.6 million.

Gross Profit

Gross profit was $16.5 million, representing approximately 56% of product
sales for the first quarter of 2002 compared to $11.4 million, representing
approximately 53% of product sales for the first quarter of 2001. The increase
in gross profit percentage was partially due to a higher proportion of domestic
sales to total product sales. Ventricular assist devices that are sold in the
United States have higher gross profits than those sold in the rest of the
world. In addition, production costs for the HeartMate product line were

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lower in the first quarter of 2002 as compared to the first quarter of
2001 due to manufacturing efficiencies achieved from higher production volumes
related to inventory buildup for the planned move to Pleasanton.

Selling, General and Administrative

Selling, general and administrative expenses increased to $8.7 million, or
29% of product sales, in the first quarter of 2002, from $7.3 million, or 34%
of product sales, in the first quarter of 2001, an increase of $1.4 million or
19%. Selling, general, and administrative expenses for the first quarter of
2001 included TCAs expenses for the full three-month period, and Thoratecs
expenses only for the post-merger period from February 14 through March 31,
2001. Had Thoratecs selling, general, and administrative expenses been
included for the full three-month period, these expenses would have decreased
by $0.3 million or 3%. This decrease is primarily due to lower employee
related expenses resulting from our restructuring activities due to personnel
reductions, primarily in the sales and marketing areas.

Research and Development

Research and development expenses increased to $6.9 million, or 23% of
product sales, in the first quarter of 2002, from $5.2 million, or 24% of
product sales, in the first quarter of 2001, an increase of $1.7 million, or
32%. Research and development expenses for the first quarter of 2001 included
TCAs expenses for the full three-month period, and Thoratec expenses only for
the post-merger period from February 14 through March 31, 2001. Had Thoratecs
research and development expenses been included for the full three-month
period, these expenses would have increased by $.7 million, or 11%. This
increase was attributable principally to higher spending on certain projects,
primarily HeartMate III.

Amortization of Goodwill and Purchased Intangible Assets

Amortization of identified purchased intangible assets was $3.1 million
in the first quarter of 2002, or 10% of product sales, as compared to $2.3
million, or 11% of product sales, in the first quarter 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
quarter of 2002 compared to the first quarter of 2001 due to three full months
of amortization included in 2002 compared to only one and a half months of
amortization included in 2001 subsequent to the February 14, 2001 merger date.
As of March 30, 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.

In-process Research and Development Costs

In-process research and development, or IPR&D, expense in the first
quarter 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.

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Merger and Restructuring Costs

Merger and restructuring costs in the first quarter of 2002 were $0.3
million, compared to $3.5 million in the first quarter of 2001. This
decrease was primarily due to a $3.4 million decrease in merger costs, principally related to employee pre-merger retention costs, and
outside consulting, accounting, and legal expenses incurred in the first
quarter of 2001, partially offset by restructuring costs of $0.2 million, incurred in the first quarter of 2002,
representing estimated severance and option acceleration costs related to the consolidation of
our VAD manufacturing operations.

Interest and Other Income  Net

Interest and other income-net was $0.1 million
in the first quarter of 2002 compared to $1.1 million in the first quarter of 2001,
a decrease of $1.0 million, or 87%. This
decrease was principally due to a reduction in interest income
caused by both lower cash balances and lower interest rates.

Income Taxes

Our effective tax benefit rate was 40.0% for the three months ended March
30, 2002. For the three months ended March 31, 2001, our effective tax rate
was 0.6%. 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 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 March 30, 2002 and December 29, 2001, we reported a net deferred tax
liability of approximately $57.0 million and $59.0 million, respectively,
comprised principally of temporary differences between financial statement and
income tax bases of intangible assets.

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Extraordinary Item

We completed the redemption of our outstanding subordinated debentures on
March 11, 2002 using our restricted cash and cash equivalents of $45.9 million
and cash of $9.8 million, which included $.8 million in accrued interest. In
the first quarter 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.

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Liquidity and Capital Resources

At March 30, 2002, we had working capital of $144.3 million compared with
$135.9 million at December 29, 2001. Cash and cash equivalents at March 30,
2002 were $92.9 million compared to $91.7 million at December 29, 2001, an
increase of $1.1 million. This increase was due principally to the proceeds
received from the issuance of common stock of $15.5 million, net of
underwriting fees and other issuance costs, partially offset
by payment of $9.0 million towards the redemption of our outstanding
subordinated debentures, capital expenditures of $1.3 million and
increases in inventories of $3.1 million related to the planned relocation of
the Woburn manufacturing facility to Pleasanton.

The Statement of Cash Flows for the three months ended March 31, 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 March 31, 2001, which included both
entities. During the first three months of 2002, $2.9 million was used in
operations compared to $3.9 million of cash used in operations for the first
three months of 2001. Uses of cash included $3.1 million for higher inventory
levels in anticipation of increasing sales and preparation for the relocation
of the Woburn manufacturing operations to Pleasanton.

During the first three months of 2002, $10.3 million of cash was used in
our investing activities compared to $24.0 million of cash used in the first
three months of 2001. 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.
Approximately $1.3 million of cash was used for capital expenditures.

During the first three months of 2002, $14.3 million of cash was provided
by financing activities. Cash provided from the issuance of common stock in an
underwritten public stock offering was $15.5 million and $0.6 million was received from exercises of stock options. This amount was partially offset
by $1.8 million used to repurchase our common stock, representing
165,000 shares which were subsequently retired. On April 12, 2001, we
announced a stock repurchase program under which our common stock with a market
value up to $20.0 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 is based on several conditions, including the price of our
stock, general market conditions and other factors.

Pursuant to the terms of a Registration Rights Agreement between us and
Thermo Electron dated October 3, 2000, 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.
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 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 these over-allotment shares.
As of the date of this report, Thermo Electron owns approximately 14% of our
total outstanding common stock.

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-month periods ended March 2002
and March 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
any associated risks related to those policies on our business operations is
discussed in our fiscal 2001 consolidated financial statements filed with the SEC in our annual report on Form 10-K. The impact and
associated risks of these critical accounting policies for the period ended
March 30, 2002 are consistent with the discussions filed on our Form 10-K.

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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 March
30, 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. We recorded a $20,000 net gain
related to foreign currency exchange for the three months ended March 30, 2002
compared to a $61,000 net loss for the three months ended March 31, 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 6. EXHIBITS AND REPORTS ON FORM 8-K



| | (a) |  | Exhibits:           
| | --- |  | --------------------
|
| |     |  | None.               
|
| | (b) |  | Reports on Form 8-K:

| | 1. |  | Amended current report filed on form 8-K/A with
      the SEC on January 24, 2002 (File No. 033-72502) reporting the
      following items:
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------

|        |  |                                                                  
|------- |  | -----------------------------------------------------------------
|Item 1: |  | Change in control
        of registrant.                         
|Item 2: |  | Acquisition or
        disposition of assets.                    
|Item 4: |  | Changes in registrants
        certifying accountant.           
|Item 5: |  | Other events.                                                    
|Item 7: |  | Financial Statements,
        Pro forma information and 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: May 13, 2002 |  | /s/    D. Keith Grossman                                                                                                                               
|                   |  | D. Keith Grossman, 
        Chief Executive Officer                                                                                                    
|                   | 
|                   |  |                                                                                                                                                        
|                   |  |                                                                                                                                                        
|Date: May 13, 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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