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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 September 27, 2003

or

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

for the transition period from __________ to ___________

COMMISSION FILE NUMBER: 1-8145

THORATEC CORPORATION

(Exact name of registrant as specified in its charter)


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

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

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

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act):
Yes [X] No [   ]

As of
November 6, 2003, registrant had 56,122,770 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 INCOME (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                               
|                              | ITEM 4. CONTROLS AND PROCEDURES                                                              
|PART II. OTHER INFORMATION   
|                              | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURES                   
|Exhibit Index                
|Exhibit 31.1                 
|Exhibit 32.1                 



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THORATEC CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS

|                              |                                                                                               |                                                                                                                                       |    |    |   | 
|----------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------- | -- | -- | - | 
|Part I. Financial Information |                                                                                               |                                                                                                                                       | 3  |   
|                              | Item 1. Condensed Consolidated Financial Statements (unaudited)                               |                                                                                                                                       |    | 3  |  
|                              |                                                                                               | Condensed Consolidated Balance Sheets as of September 27, 2003 and December 28, 2002                                                  |    |    | 3 | 
|                              |                                                                                               | Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 27,
2003 and September 28, 2002         |    |    | 4 | 
|                              |                                                                                               | Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 27, 2003 and
September 28, 2002                   |    |    | 5 | 
|                              |                                                                                               | Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended
September 27, 2003 and September 28, 2002 |    |    | 6 | 
|                              |                                                                                               | Notes to Condensed Consolidated Financial Statements                                                                                  |    |    | 7 | 
|                              | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |                                                                                                                                       |    | 14 |  
|                              | Item 3. Quantitative and Qualitative Disclosure of Market Risk                                |                                                                                                                                       |    | 18 |  
|                              | Item 4. Controls and Procedures                                                               |                                                                                                                                       |    | 18 |  
|Part II. Other Information    |                                                                                               |                                                                                                                                       | 19 |   
|                              | Item 6. Exhibits and Reports on Form 8-K                                                      |                                                                                                                                       |    | 19 |  
|Signatures                    |                                                                                               |                                                                                                                                       | 20 |   
|Exhibits                      |                                                                                               |                                                                                                                                       | 21 |   

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##### Table of Contents






PART I. FINANCIAL INFORMATION




ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THORATEC CORPORATION AND SUBSIDIARIES




CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)
(in thousands)

|                                           |                                                                                             |                                              |         |               |         |              |         |         |         | 
|------------------------------------------ | ------------------------------------------------------------------------------------------- | -------------------------------------------- | ------- | ------------- | ------- | ------------ | ------- | ------- | ------- | 
|                                           |                                                                                             |                                              |         | September 27, |         | December 28,
|                                           |                                                                                             |                                              |         | 2003          |         | 2002        
|                                           |                                                                                             |                                              |         |               |         |             
|Assets                                     |                                                                                             |                                              |         |               |         |              |         |        
|Current Assets:                            |                                                                                             |                                              |         |               |         |              |         |        
|                                           | Cash and cash equivalents                                                                   |                                              | $       | 62,495        |         |              | $       | 45,483  |        
|                                           | Receivables, net of allowances of $233 in 2003 and $238 in 2002                             |                                              |         | 22,767        |         |              |         | 27,593  |        
|                                           | Inventories                                                                                 |                                              |         | 36,565        |         |              |         | 38,835  |        
|                                           | Deferred tax asset and other                                                                |                                              |         | 15,044        |         |              |         | 14,699  |        
|                                           |                                                                                             |                                              |         |               |         |              |         |        
|                                           |                                                                                             | Total Current Assets                         |         |               | 136,871 |              |         |         | 126,610 | 
|                                           |                                                                                             |                                              |         |               |         |              |         |        
|Property, plant and equipment, net         |                                                                                             |                                              | 24,683  |               |         |              | 24,715  |        
|Long-term available-for-sale investments   |                                                                                             |                                              | 40,088  |               |         |              | 30,051  |        
|Goodwill                                   |                                                                                             |                                              | 96,492  |               |         |              | 96,492  |        
|Purchased intangible assets, net           |                                                                                             |                                              | 175,211 |               |         |              | 184,282 |        
|Long-term deferred tax asset and other     |                                                                                             |                                              | 4,754   |               |         |              | 6,282   |        
|                                           |                                                                                             |                                              |         |               |         |              |         |        
|                                           |                                                                                             | Total Assets                                 |         | $             | 478,099 |              |         | $       | 468,432 | 
|                                           |                                                                                             |                                              |         |               |         |              |         |         |        
|Liabilities and Shareholders Equity       |                                                                                             |                                              |         |               |         |              |         |        
|Current Liabilities:                       |                                                                                             |                                              |         |               |         |              |         |        
|                                           | Accounts payable and accrued expenses                                                       |                                              | $       | 17,898        |         |              | $       | 18,638  |        
|                                           |                                                                                             |                                              |         |               |         |              |         |        
|                                           |                                                                                             | Total Current Liabilities                    |         |               | 17,898  |              |         |         | 18,638  | 
|                                           |                                                                                             |                                              |         |               |         |              |         |        
|Long-term deferred tax liability and other |                                                                                             |                                              | 71,773  |               |         |              | 75,454  |        
|                                           |                                                                                             |                                              |         |               |         |              |         |        
|                                           |                                                                                             | Total Liabilities                            |         |               | 89,671  |              |         |         | 94,092  | 
|                                           |                                                                                             |                                              |         |               |         |              |         |        
|Shareholders Equity:                      |                                                                                             |                                              |         |               |         |              |         |        
|                                           | Common shares; 100,000 authorized; issued and outstanding
56,004 in 2003 and 55,037 in 2002 |                                              |         | 420,061       |         |              |         | 410,266 |        
|                                           | Deferred compensation                                                                       |                                              |         | (2,836        | )       |              |         | (3,735  | )      
|                                           | Accumulated deficit                                                                         |                                              |         | (29,085       | )       |              |         | (32,412 | )      
|                                           | Accumulated other comprehensive income:                                                     |                                              |         |               |         |              |         |         |        
|                                           | Cumulative foreign currency translation adjustments                                         |                                              |         | 176           |         |              |         | 91      |        
|                                           | Unrealized gain on investment                                                               |                                              |         | 112           |         |              |         | 130     |        
|                                           |                                                                                             |                                              |         |               |         |              |         |        
|                                           |                                                                                             | Total accumulated other comprehensive income |         |               | 288     |              |         |         | 221     | 
|                                           |                                                                                             |                                              |         |               |         |              |         |        
|                                           |                                                                                             | Total Shareholders Equity                   |         |               | 388,428 |              |         |         | 373,340 | 
|                                           |                                                                                             |                                              |         |               |         |              |         |        
|                                           | Total Liabilities and Shareholders Equity                                                  |                                              | $       | 478,099       |         |              | $       | 468,432 |        
|                                           |                                                                                             |                                              |         |               |         |              |         |         |        

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 |        | Nine Months Ended
|                                                    |                                                |   |                          |        |                    |        |                  
|                                                    |                                                |   |                          |        | September 27,      |        | September 28,     |        | September 27, |        | September 28,
|                                                    |                                                |   |                          |        | 2003               |        | 2002              |        | 2003          |        | 2002         
|                                                    |                                                |   |                          |        |                    |        |                   |        |               |        |              
|Product sales                                       |                                                | $ | 35,250                   |        |                    | $      | 31,105            |        |               | $      | 107,469       |        |   | $      | 91,779 |       
|Cost of product sales                               |                                                |   | 14,256                   |        |                    |        | 13,055            |        |               |        | 43,799        |        |   |        | 39,500 |       
|                                                    |                                                |   |                          |        |                    |        |                   |        |               |        |               |        |   |        |        |       
|Gross profit                                        |                                                |   | 20,994                   |        |                    |        | 18,050            |        |               |        | 63,670        |        |   |        | 52,279 |       
|                                                    |                                                |   |                          |        |                    |        |                   |        |               |        |               |        |   |        |        |       
|Operating expenses:                                 |                                                |   |                          |        |                    |        |                   |        |               |        |               |        |   |        |        |       
|                                                    | Selling, general and administrative            |   |                          | 10,562 |                    |        |                   | 9,150  |               |        |               | 31,791 |   |        |        | 27,716 |  
|                                                    | Research and development                       |   |                          | 6,100  |                    |        |                   | 5,916  |               |        |               | 18,640 |   |        |        | 18,902 |  
|                                                    | Amortization of purchased intangible assets    |   |                          | 3,096  |                    |        |                   | 3,096  |               |        |               | 9,288  |   |        |        | 9,288  |  
|                                                    | Merger, restructuring and other costs          |   |                          |      |                    |        |                   | 32     |               |        |               | (124   | ) |        |        | 859    |  
|                                                    |                                                |   |                          |        |                    |        |                   |        |               |        |               |        |   |        |        |       
|                                                    |                                                |   | Total operating expenses |        |                    | 19,758 |                   |        |               | 18,194 |               |        |   | 59,595 |        |        |   | 56,765 | 
|                                                    |                                                |   |                          |        |                    |        |                   |        |               |        |               |        |   |        |        |       
|Income (loss) from operations                       |                                                |   | 1,236                    |        |                    |        | (144              | )      |               |        | 4,075         |        |   |        | (4,486 | )     
|Interest and other income - net                     |                                                |   | 218                      |        |                    |        | 536               |        |               |        | 1,379         |        |   |        | 1,022  |       
|                                                    |                                                |   |                          |        |                    |        |                   |        |               |        |               |        |   |        |        |       
|Income (loss) before income tax expense (benefit)   |                                                |   | 1,454                    |        |                    |        | 392               |        |               |        | 5,454         |        |   |        | (3,464 | )     
|Income tax expense (benefit)                        |                                                |   | 567                      |        |                    |        | 155               |        |               |        | 2,127         |        |   |        | (1,388 | )     
|                                                    |                                                |   |                          |        |                    |        |                   |        |               |        |               |        |   |        |        |       
|Net income (loss)                                   |                                                | $ | 887                      |        |                    | $      | 237               |        |               | $      | 3,327         |        |   | $      | (2,076 | )     
|                                                    |                                                |   |                          |        |                    |        |                   |        |               |        |               |        |   |        |        |       
|                                                    | Net income (loss) per share, basic and diluted |   | $                        | 0.02   |                    |        | $                 | 0.00   |               |        | $             | 0.06   |   |        | $      | (0.04  | )
|                                                    |                                                |   |                          |        |                    |        |                   |        |               |        |               |        |   |        |        |       
|Shares used to compute net income (loss) per share: |                                                |   |                          |        |                    |        |                   |        |               |        |               |        |   |        |        |       
|                                                    | Basic                                          |   |                          | 55,704 |                    |        |                   | 56,268 |               |        |               | 55,386 |   |        |        | 56,572 |  
|                                                    | Diluted                                        |   |                          | 57,705 |                    |        |                   | 56,455 |               |        |               | 56,761 |   |        |        | 56,572 |  

See notes to condensed consolidated financial statements.

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THORATEC CORPORATION AND SUBSIDIARIES




CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)
(in thousands)

|                                                                                         |                                                                           |                                        |   |                   |        |               |   |         |         |  
|---------------------------------------------------------------------------------------- | ------------------------------------------------------------------------- | -------------------------------------- | - | ----------------- | ------ | ------------- | - | ------- | ------- | -
|                                                                                         |                                                                           |                                        |   | Nine Months Ended
|                                                                                         |                                                                           |                                        |   |                  
|                                                                                         |                                                                           |                                        |   | September 27,     |        | September 28,
|                                                                                         |                                                                           |                                        |   | 2003              |        | 2002         
|                                                                                         |                                                                           |                                        |   |                   |        |              
|Cash flows from operating activities:                                                    |                                                                           |                                        |   |                   |        |               |   |        
|                                                                                         | Net income (loss)                                                         |                                        | $ | 3,327             |        |               | $ | (2,076  | )      
|Adjustments to reconcile net income (loss) to net cash provided by
operating activities: |                                                                           |                                        |   |                   |        |               |   |        
|                                                                                         | Depreciation and amortization                                             |                                        |   | 13,981            |        |               |   | 12,711  |        
|                                                                                         | Amortization of deferred compensation                                     |                                        |   | 903               |        |               |   | 1,000   |        
|                                                                                         | Change in net deferred tax liability                                      |                                        |   | (703              | )      |               |   | (3,552  | )      
|                                                                                         | Changes in assets and liabilities:                                        |                                        |   |                   |        |               |   |         |        
|                                                                                         |                                                                           | Receivables                            |   |                   | 4,925  |               |   |         | 6,032   |  
|                                                                                         |                                                                           | Inventories                            |   |                   | 2,356  |               |   |         | (12,977 | )
|                                                                                         |                                                                           | Prepaid expenses and other assets      |   |                   | (1,720 | )             |   |         | (1,195  | )
|                                                                                         |                                                                           | Accounts payable and other liabilities |   |                   | 1,087  |               |   |         | 82      |  
|                                                                                         |                                                                           |                                        |   |                   |        |               |   |        
|                                                                                         | Net cash provided by operating activities                                 |                                        |   | 24,156            |        |               |   | 25      |        
|                                                                                         |                                                                           |                                        |   |                   |        |               |   |        
|Cash flows from investing activities:                                                    |                                                                           |                                        |   |                   |        |               |   |        
|                                                                                         | Purchases of available-for-sale investments                               |                                        |   | (14,138           | )      |               |   | (34,336 | )      
|                                                                                         | Sales of available-for-sale investments                                   |                                        |   | 6,708             |        |               |   |        |        
|                                                                                         | Reclassification from restricted cash and cash equivalents                |                                        |   |                 |        |               |   | 45,884  |        
|                                                                                         | Purchases of property, plant and equipment                                |                                        |   | (4,169            | )      |               |   | (5,460  | )      
|                                                                                         |                                                                           |                                        |   |                   |        |               |   |        
|                                                                                         | Net cash provided by (used in) investing activities                       |                                        |   | (11,599           | )      |               |   | 6,088   |        
|                                                                                         |                                                                           |                                        |   |                   |        |               |   |        
|Cash flows from financing activities:                                                    |                                                                           |                                        |   |                   |        |               |   |        
|                                                                                         | Proceeds from exercise of stock options and issuance of shares under ESPP |                                        |   | 7,844             |        |               |   | 643     |        
|                                                                                         | Proceeds from common stock offering                                       |                                        |   |                 |        |               |   | 15,356  |        
|                                                                                         | Repayment of convertible debentures                                       |                                        |   |                 |        |               |   | (54,838 | )      
|                                                                                         | Repurchase of common stock                                                |                                        |   |                 |        |               |   | (18,336 | )      
|                                                                                         |                                                                           |                                        |   |                   |        |               |   |        
|                                                                                         | Net cash provided by (used in) financing activities                       |                                        |   | 7,844             |        |               |   | (57,175 | )      
|                                                                                         | Effect of exchange rate changes on cash                                   |                                        |   | 50                |        |               |   | 148     |        
|                                                                                         |                                                                           |                                        |   |                   |        |               |   |        
|                                                                                         | Net increase (decrease) in cash and cash equivalents                      |                                        |   | 20,451            |        |               |   | (50,914 | )      
|                                                                                         | Cash and cash equivalents at beginning of period                          |                                        |   | 42,044            |        |               |   | 91,726  |        
|                                                                                         |                                                                           |                                        |   |                   |        |               |   |        
|                                                                                         | Cash and cash equivalents at end of period                                |                                        | $ | 62,495            |        |               | $ | 40,812  |        
|                                                                                         |                                                                           |                                        |   |                   |        |               |   |         |        
|Supplemental Cash Flow Disclosure:                                                       |                                                                           |                                        |   |                   |        |               |   |        
|                                                                                         | Cash paid for taxes                                                       |                                        | $ | 726               |        |               | $ | 227     |        
|                                                                                         | Cash paid for interest                                                    |                                        | $ |                 |        |               | $ | 839     |        
|Supplemental Disclosure of Non-Cash Investing and Financing Activities:                  |                                                                           |                                        |   |                   |        |               |   |        
|                                                                                         | Reclassification of assembled workforce, net of taxes                     |                                        | $ |                 |        |               | $ | 1,334   |        
|                                                                                         | Tax benefit related to stock option exercises                             |                                        | $ | 1,948             |        |               | $ | 147     |        

See notes to condensed consolidated financial statements.

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THORATEC CORPORATION AND SUBSIDIARIES




CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited)
(in thousands)

|                                       |  |                                          |     |                    |     |                   |     |               |    |               |       |  |     |   |        |   |    | 
|-------------------------------------- |  | ---------------------------------------- | --- | ------------------ | --- | ----------------- | --- | ------------- | -- | ------------- | ----- |  | --- | - | ------ | - | -- | 
|                                       |  |                                          |     | Three Months Ended |     | Nine Months Ended
|                                       |  |                                          |     |                    |     |                  
|                                       |  |                                          |     | September 27,      |     | September 28,     |     | September 27, |    | September 28,
|                                       |  |                                          |     | 2003               |     | 2002              |     | 2003          |    | 2002         
|                                       |  |                                          |     |                    |     |                   |     |               |    |              
|Net income (loss)                      |  | $                                        | 887 |                    |     | $                 | 237 |               |    | $             | 3,327 |  |     | $ | (2,076 | )
|                                       |  |                                          |     |                    |     |                   |     |               |    |               |       |  |     |   |        |  
|Other net comprehensive income (loss): |  |                                          |     |                    |     |                   |     |               |    |               |       |  |     |   |        |  
|                                       |  | Unrealized gain (loss) on investments    |     |                    | (37 | )                 |     |               | 56 |               |       |  | (18 | ) |        |   | 56 | 
|                                       |  | Foreign currency translation adjustments |     |                    | 29  |                   |     |               | 25 |               |       |  | 85  |   |        |   | 75 | 
|                                       |  |                                          |     |                    |     |                   |     |               |    |               |       |  |     |   |        |  
|Comprehensive income (loss)            |  | $                                        | 879 |                    |     | $                 | 318 |               |    | $             | 3,394 |  |     | $ | (1,945 | )
|                                       |  |                                          |     |                    |     |                   |     |               |    |               |       |  |     |   |        |  

See notes to condensed consolidated financial statements.

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THORATEC CORPORATION AND SUBSIDIARIES




NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, unless otherwise stated)

1. Basis of Presentation and
Significant Accounting Policies

The interim condensed consolidated financial statements of Thoratec
Corporation, referred to as we, our, Thoratec, or the 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 reflect all
adjustments necessary (consisting only of normal recurring adjustments) to
present fairly our financial position at September 27, 2003 and December 28,
2002, our results of operations for the three-month and nine-month periods
ended September 27, 2003 and September 28, 2002 and cash flows for the
nine-month periods ended September 27, 2003 and September 28, 2002. 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
2002 consolidated financial statements filed with the SEC in our Annual Report
on Form 10-K. 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 2002 amounts to conform to the
current presentation.

Stock Based Compensation

We account for stock-based compensation to employees using the intrinsic
value method in accordance with APB No. 25, Accounting for Stock Issued to Employees. Accordingly, no accounting
recognition is given to stock options granted at fair market value until they
are exercised. Upon exercise, net proceeds, including tax benefits realized,
are recorded in shareholders equity. Similarly, no accounting recognition is
given to our recently implemented employee stock purchase plan until a purchase
occurs. Upon purchase, net proceeds are recorded in common stock. Under fair
value recognition provisions of SFAS No. 123, the fair value of each option
granted as a stock option or as an option to purchase shares under the employee
stock purchase plan is estimated using the Black-Scholes option-pricing model.
If compensation cost for our stock-based plans had been determined based on the
fair value at the grant dates for awards under those plans, consistent with the
method of SFAS No. 123, our reported net income (loss) would have been
adversely affected, as shown in the following table (in thousands, except per
share data):

|                                             |                                                                                                                                             |   |                    |        |                   |   |               |        |               |   |       |        |   |   |        |        |  
|-------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------------ | ------ | ----------------- | - | ------------- | ------ | ------------- | - | ----- | ------ | - | - | ------ | ------ | -
|                                             |                                                                                                                                             |   | Three Months Ended |        | Nine Months Ended
|                                             |                                                                                                                                             |   |                    |        |                  
|                                             |                                                                                                                                             |   | September 27,      |        | September 28,     |   | September 27, |        | September 28,
|                                             |                                                                                                                                             |   | 2003               |        | 2002              |   | 2003          |        | 2002         
|                                             |                                                                                                                                             |   |                    |        |                   |   |               |        |              
|Net income (loss):                           |                                                                                                                                             |   |                    |        |                   |   |               |        |               |   |       |        |   |   |        |       
|As reported                                  |                                                                                                                                             | $ | 887                |        |                   | $ | 237           |        |               | $ | 3,327 |        |   | $ | (2,076 | )     
|                                             | Add: Stock-based compensation
expense included in reported net
income, net of related tax effects                                           |   |                    |      |                   |   |               | (32    | )             |   |       | 4      |   |   |        | 59     |  
|                                             | Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards, net of related tax effects |   |                    | (1,985 | )                 |   |               | (2,352 | )             |   |       | (5,433 | ) |   |        | (6,878 | )
|                                             |                                                                                                                                             |   |                    |        |                   |   |               |        |               |   |       |        |   |   |        |       
|                                             | Pro forma                                                                                                                                   |   | $                  | (1,098 | )                 |   | $             | (2,147 | )             |   | $     | (2,102 | ) |   | $      | (8,895 | )
|                                             |                                                                                                                                             |   |                    |        |                   |   |               |        |               |   |       |        |   |   |        |       
|Basic and diluted earnings (loss) per
share: |                                                                                                                                             |   |                    |        |                   |   |               |        |               |   |       |        |   |   |        |       
|                                             | As reported                                                                                                                                 |   | $                  | 0.02   |                   |   | $             | 0.00   |               |   | $     | 0.06   |   |   | $      | (0.04  | )
|                                             | Pro forma                                                                                                                                   |   | $                  | (0.02  | )                 |   | $             | (0.04  | )             |   | $     | (0.04  | ) |   | $      | (0.16  | )

2. Merger of Thoratec and TCA

Our merger with Thermo Cardiosystems Inc., or TCA, was completed on
February 14, 2001 which we refer to as the Merger. 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 considered the
acquiror for accounting and financial reporting purposes. Due to the reverse
acquisition, Thoratecs assets and liabilities were recorded based upon their
estimated fair market values at the date of acquisition.

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
one-time write-off of IPR&D related to four technology projects that were in
development, had not reached technological feasibility, had no alternative
future use and for which successful development was uncertain. One of the
projects was completed in 2002. There have been no significant developments
subsequent to the Merger related to the current status of any of the three
remaining IPR&D projects that would result in material changes to the
assumptions or resulting valuation performed at the time of the Merger.
Development of IPR&D projects continues and while the timing of completion of
these projects may vary due to the highly regulated and technical nature of our
products, current estimates remain materially consistent with our initial
estimates.

3. New Accounting Pronouncements

In April 2002, the FASB issued SFAS No. 145, (Rescission of FASB
Statements 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections) 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 Accounting Principle Board, or APB,
Opinion No. 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 adopted SFAS
No. 145 at the beginning of fiscal year 2003. Upon adoption, we reclassified
the extraordinary loss on extinguishment of debt incurred in the first quarter
of 2002 of $515 to Interest and Other Income-Net.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. The Company will apply the
provisions of SFAS No. 146 for any restructuring activities initiated after
December 31, 2002.

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In
November 2002, the Emerging Issues Task Force, or EITF, reached a consensus regarding EITF Issue No.
00-21, Revenue Arrangements with Multiple Deliverables. The guidance provided
is effective for contracts entered into on or after July 1, 2003. The adoption
of this statement did not have a material effect upon our consolidated
financial statements.

In November 2002, the FASB issued Financial Interpretation, or FIN, No.
45, Guarantors Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others. We adopted the
disclosure provisions of FIN No. 45 effective as of fiscal year end 2002. We do
not expect that the recognition provisions of FIN No. 45 will have a material
impact upon our consolidated financial statements.

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133
on Derivative Instruments and Hedging Activities.This statement is effective
for contracts entered into or modified after June 30, 2003. We adopted SFAS No.
149 effective July 1, 2003. The adoption of this statement did
not have a material effect upon our consolidated financial statements.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity.The
adoption of this statement is not expected to have an impact on our financial
position, results of operations or cash flows.

4. Financial Instruments

We have
a foreign currency exchange risk management program principally designed to
mitigate the change in value of assets and liabilities that are denominated in
non-functional currencies. Forward exchange contracts that generally have
terms of three months or less are used to hedge these non-functional currency
exposures on the Companys books. The derivatives used in the
foreign currency exchange risk management program are not designated as cash flow or fair value hedges under SFAS
133. These contracts are recorded on the balance sheet at fair value in
Deferred Tax Asset and Other current assets. Changes in the fair value of
the contracts and the underlying exposures being hedged are included
concurrently in Interest and Other
Income  Net. At September 27, 2003, the
fair value was $4,600, and the change from the notional value was
insignificant.

5. Inventories

Inventories consist of the following:

|                |       |   |               |        |              |   |        |        | 
|--------------- | ----- | - | ------------- | ------ | ------------ | - | ------ | ------ | 
|                |       |   | September 27, |        | December 28,
|                |       |   | 2003          |        | 2002        
|                |       |   |               |        |             
|Finished goods  |       | $ | 12,161        |        |              | $ | 17,498 |       
|Work in process |       |   | 11,393        |        |              |   | 6,645  |       
|Raw materials   |       |   | 13,011        |        |              |   | 14,692 |       
|                |       |   |               |        |              |   |        |       
|                | Total |   | $             | 36,565 |              |   | $      | 38,835 | 
|                |       |   |               |        |              |   |        |       

6. Property, Plant and Equipment

Property, plant, and equipment consist of the following:

|                                       |       |   |               |        |              |   |         |        | 
|-------------------------------------- | ----- | - | ------------- | ------ | ------------ | - | ------- | ------ | 
|                                       |       |   | September 27, |        | December 28,
|                                       |       |   | 2003          |        | 2002        
|                                       |       |   |               |        |             
|Property, plant and equipment, at cost |       | $ | 53,047        |        |              | $ | 49,355  |       
|Less accumulated depreciation          |       |   | (28,364       | )      |              |   | (24,640 | )     
|                                       |       |   |               |        |              |   |         |       
|                                       | Total |   | $             | 24,683 |              |   | $       | 24,715 | 
|                                       |       |   |               |        |              |   |         |       

7. Goodwill and Other Intangible Assets

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The change in the carrying amount of goodwill attributable to our
Cardiovascular business segment was as follows:

|                                                           |  |                   |        |               |  |   |        |  
|---------------------------------------------------------- |  | ----------------- | ------ | ------------- |  | - | ------ | -
|                                                           |  | Nine Months Ended
|                                                           |  |                  
|                                                           |  | September 27,     |        | September 28,
|                                                           |  | 2003              |        | 2002         
|                                                           |  |                   |        |              
|Beginning balance                                          |  | $                 | 96,492 |               |  | $ | 95,209 |  
|Reclassification of assembled workforce, net of taxes      |  |                   |      |               |  |   | 1,334  |  
|Adjustment to reflect resolution of pre-merger contingency |  |                   |      |               |  |   | (51    | )
|                                                           |  |                   |        |               |  |   |        |  
|Ending balance                                             |  | $                 | 96,492 |               |  | $ | 96,492 |  
|                                                           |  |                   |        |               |  |   |        |  

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

|                       |                                   |   |                          |         |              |   |            |         |   |   |         |         | 
|---------------------- | --------------------------------- | - | ------------------------ | ------- | ------------ | - | ---------- | ------- | - | - | ------- | ------- | 
|                       |                                   |   | As of September 27, 2003
|                       |                                   |   |                         
|                       |                                   |   | Gross                    |         | Accumulated  |   |            |         |  
|                       |                                   |   | Amount                   |         | Amortization |   | Net Amount
|                       |                                   |   |                          |         |              |   |           
|Developed Technology   |                                   | $ | 132,301                  |         |              | $ | (17,364    | )       |   | $ | 114,937 |        
|Core Technology        |                                   |   | 37,181                   |         |              |   | (4,880     | )       |   |   | 32,301  |        
|Patents and Trademarks |                                   |   | 37,478                   |         |              |   | (9,505     | )       |   |   | 27,973  |        
|                       |                                   |   |                          |         |              |   |            |         |   |   |         |        
|                       | Total Purchased
Intangible Assets |   | $                        | 206,960 |              |   | $          | (31,749 | ) |   | $       | 175,211 | 
|                       |                                   |   |                          |         |              |   |            |         |   |   |         |        

|                       |                                   |   |                         |         |              |   |            |         |   |   |         |         | 
|---------------------- | --------------------------------- | - | ----------------------- | ------- | ------------ | - | ---------- | ------- | - | - | ------- | ------- | 
|                       |                                   |   | As of December 28, 2002
|                       |                                   |   |                        
|                       |                                   |   | Gross                   |         | Accumulated  |   |            |         |  
|                       |                                   |   | Amount                  |         | Amortization |   | Net Amount
|                       |                                   |   |                         |         |              |   |           
|Developed Technology   |                                   | $ | 132,301                 |         |              | $ | (12,403    | )       |   | $ | 119,898 |        
|Core Technology        |                                   |   | 37,181                  |         |              |   | (3,486     | )       |   |   | 33,695  |        
|Patents and Trademarks |                                   |   | 37,478                  |         |              |   | (6,789     | )       |   |   | 30,689  |        
|                       |                                   |   |                         |         |              |   |            |         |   |   |         |        
|                       | Total Purchased
Intangible Assets |   | $                       | 206,960 |              |   | $          | (22,678 | ) |   | $       | 184,282 | 
|                       |                                   |   |                         |         |              |   |            |         |   |   |         |        

As of the beginning of fiscal 2002, the purchased intangible asset
associated with the assembled workforce in the amount of $1,334, net of
accumulated amortization of $381 and taxes of $897, was reclassified to
goodwill.

Amortization expense related to identifiable intangible assets for the
three month and nine month periods ended September 27, 2003 and September 28,
2002 was $3,096, $9,288, $3,096 and $9,288, respectively. For the three and
nine months ended September 27, 2003 and September 28, 2002, purchased
intangible assets amortization expense also included $72, $217, $72 and $217,
respectively, of amortization of deferred compensation recorded at the time of
the Merger related to the valuation of stock options. Amortization expense is
expected to be approximately $12,100 for each of the next five years. The
purchased intangible assets have estimated useful lives of eight to twenty
years.

8. Common Stock

On May 30, 2003, our 1996 Nonemployee Directors Stock Option Plan
(Directors Option Plan) and our 1997 Stock Option Plan (1997 SOP) were
amended by approval of our Companys shareholders. These amendments increased
the number of shares of our common stock reserved for issuance upon exercise of
options granted under the Directors Option Plan and the 1997 SOP by 200,000 and
4,500,000, respectively. These increases assist us in attracting and retaining
employees and non-employee directors.

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9. Merger, Restructuring and Other Costs

Merger, restructuring and other costs were recorded as follows:

|              |  |                    |   |                   |  |               |     |               |  |   |      |   |  |   |     | 
|------------- |  | ------------------ | - | ----------------- |  | ------------- | --- | ------------- |  | - | ---- | - |  | - | --- | 
|              |  | Three Months Ended |   | Nine Months Ended
|              |  |                    |   |                  
|              |  | September 27,      |   | September 28,     |  | September 27, |     | September 28,
|              |  | 2003               |   | 2002              |  | 2003          |     | 2002         
|              |  |                    |   |                   |  |               |     |              
|Merger        |  | $                  |  |                   |  | $             | 67  |               |  | $ |     |   |  | $ | 356 | 
|Restructuring |  |                    |  |                   |  |               | (35 | )             |  |   | (118 | ) |  |   | 503 | 
|Other         |  |                    |  |                   |  |               |    |               |  |   | (6   | ) |  |   |    | 
|              |  |                    |   |                   |  |               |     |               |  |   |      |   |  |   |     | 
|Total         |  | $                  |  |                   |  | $             | 32  |               |  | $ | (124 | ) |  | $ | 859 | 
|              |  |                    |   |                   |  |               |     |               |  |   |      |   |  |   |     | 

Merger Costs

All merger activities and related expenses were completed in the third
quarter of 2002. Merger costs recorded during the three and six months ended
September 28, 2002 consisted of executive waiver agreement expenses. In
accordance with the executive waiver agreements, payments to the executives
occurred at the one-year anniversary of the Merger, although the executives
continued to be restricted from exercising some of their options and selling
the related stock for an additional six months following the one-year
anniversary date. The total expense related to the waiver agreements of $811
was amortized over the 18-month waiver period. As of September 28, 2002, the
ending balance of accrued merger costs was reclassified to Deferred Tax Asset
and Other current assets.

The following table reflects the activity in accrued merger costs for the
three-month and six-month periods ended September 28, 2002:

|                  |                                                  |   |               |    |               |   |     |     | 
|----------------- | ------------------------------------------------ | - | ------------- | -- | ------------- | - | --- | --- | 
|                  |                                                  |   | Three Months  |    | Nine Months  
|                  |                                                  |   | Ended         |    | Ended        
|                  |                                                  |   | September 28, |    | September 28,
|                  |                                                  |   | 2002          |    | 2002         
|                  |                                                  |   |               |    |              
|Beginning balance |                                                  | $ | (63           | )  |               | $ | 472 |    
|Add:              |                                                  |   |               |    |               |   |     |    
|                  | Accruals pursuant to executive
waiver agreements |   |               | 67 |               |   |     | 337 | 
|                  | Accruals of other merger costs                   |   |               |  |               |   |     | 19  | 

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|               |                                                  |   |               |    |               |   |    |      |  
|-------------- | ------------------------------------------------ | - | ------------- | -- | ------------- | - | -- | ---- | -
|               |                                                  |   | Three Months  |    | Nine Months  
|               |                                                  |   | Ended         |    | Ended        
|               |                                                  |   | September 28, |    | September 28,
|               |                                                  |   | 2002          |    | 2002         
|               |                                                  |   |               |    |              
|Less:          |                                                  |   |               |    |               |   |    |     
|               | Payments pursuant to executive
waiver agreements |   |               |   |               |   |    | (810 | )
|               | Payments of other merger costs                   |   |               | (7 | )             |   |    | (21  | )
|               |                                                  |   |               |    |               |   |    |     
|Ending balance |                                                  | $ | (3            | )  |               | $ | (3 | )   
|               |                                                  |   |               |    |               |   |    |     

Restructuring Costs

All restructuring activities and related expenses were completed in the
second quarter of 2003. From the inception of our plan to consolidate all of
our ventricular assist device, or VAD, manufacturing operations which
we call the Restructuring Plan, through
September 27, 2003, we recorded $1,495 of restructuring charges. These charges
represented estimated employee severance costs and stock option acceleration
charges. Total severance payments under the Restructuring Plan were $1,297 to
78 employees. Following is a summary of our restructuring costs activity:

|                             |                                |   |                    |    |                    |   |                    |      |                    |   |     |      |   |   |     |      |  
|---------------------------- | ------------------------------ | - | ------------------ | -- | ------------------ | - | ------------------ | ---- | ------------------ | - | --- | ---- | - | - | --- | ---- | -
|                             |                                |   | Three Months Ended |    | Nine Months Ended 
|                             |                                |   |                    |    |                   
|                             |                                |   | September 27, 2003 |    | September 28, 2002 |   | September 27, 2003 |      | September 28, 2002
|                             |                                |   |                    |    |                    |   |                    |      |                   
|Accrued Restructuring Costs: |                                |   |                    |    |                    |   |                    |      |                    |   |     |      |   |   |     |     
|Beginning balance            |                                | $ |                  |    |                    | $ | 839                |      |                    | $ | 679 |      |   | $ | 863 |     
|                             | Employee severance accrual     |   |                    |  |                    |   |                    | 18   |                    |   |     |     |   |   |     | 404  |  
|                             | Reduction of severance accrual |   |                    |  |                    |   |                    |    |                    |   |     | (122 | ) |   |     |    |  
|                             | Payments of employee severance |   |                    |  |                    |   |                    | (123 | )                  |   |     | (557 | ) |   |     | (533 | )
|                             |                                |   |                    |    |                    |   |                    |      |                    |   |     |      |   |   |     |     
|Ending balance               |                                | $ |                  |    |                    | $ | 734                |      |                    | $ |   |      |   | $ | 734 |     
|                             |                                |   |                    |    |                    |   |                    |      |                    |   |     |      |   |   |     |     

For the three months and nine months ended September 27, 2003 and
September 28, 2002, in addition to the employee severance costs, estimated
restructuring costs included expense related to the acceleration of stock
options granted to employees who were terminated under the Restructuring Plan.
Stock option acceleration expense recorded in the three and nine-month periods
ending September 27, 2003 and in the nine-month period ending September 28,
2002 was nil, $4 and $99, respectively. In the three-month period ending
September 28, 2002, the estimated expense was reduced by $53.

Other Costs

Other costs of $529 were accrued in the fourth quarter of 2002 related to
the termination of a European distribution agreement. In the first quarter of
2003, $523 of this amount was paid. The remaining $6 of the original accrual
was reversed from expense in the second quarter of 2003 as an adjustment to
estimated settlement costs.

10. Income Taxes

Our effective tax provision rate was 39% for the three-month and
nine-month periods ended September 27, 2003. For the three and nine-months
periods ended September 28, 2002, our effective tax provision and tax benefit
rates, respectively, were 40%. The effective tax provision rate for 2003 and
the effective tax benefit rate for 2002 both differed from the statutory
federal income tax rate primarily due to the impact of state taxes.

At September 27, 2003 and December 28, 2002, we reported a net deferred
tax liability of approximately $56.0 million and $56.7 million, respectively,
comprised principally of temporary differences between the financial statement
and income tax bases of intangible assets.

11. Net Income (Loss) Per Share

Basic and diluted earnings (loss) per share were calculated as follows:

|                                                  |  |                    |        |                   |  |               |        |               |  |   |        |  |  |   |        |  
|------------------------------------------------- |  | ------------------ | ------ | ----------------- |  | ------------- | ------ | ------------- |  | - | ------ |  |  | - | ------ | -
|                                                  |  | Three Months Ended |        | Nine Months Ended
|                                                  |  |                    |        |                  
|                                                  |  | September 27,      |        | September 28,     |  | September 27, |        | September 28,
|                                                  |  | 2003               |        | 2002              |  | 2003          |        | 2002         
|                                                  |  |                    |        |                   |  |               |        |              
|Net income (loss)                                 |  | $                  | 887    |                   |  | $             | 237    |               |  | $ | 3,327  |  |  | $ | (2,076 | )
|                                                  |  |                    |        |                   |  |               |        |               |  |   |        |  |  |   |        |  
|Weighted average number of common shares-basic    |  |                    | 55,704 |                   |  |               | 56,268 |               |  |   | 55,386 |  |  |   | 56,572 |  
|Dilutive effect of stock-based compensation plans |  |                    | 2,001  |                   |  |               | 187    |               |  |   | 1,375  |  |  |   |       |  
|                                                  |  |                    |        |                   |  |               |        |               |  |   |        |  |  |   |        |  

11



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|                                                     |  |                    |        |                   |  |               |        |               |  |   |        |  |  |   |        |  
|---------------------------------------------------- |  | ------------------ | ------ | ----------------- |  | ------------- | ------ | ------------- |  | - | ------ |  |  | - | ------ | -
|                                                     |  | Three Months Ended |        | Nine Months Ended
|                                                     |  |                    |        |                  
|                                                     |  | September 27,      |        | September 28,     |  | September 27, |        | September 28,
|                                                     |  | 2003               |        | 2002              |  | 2003          |        | 2002         
|                                                     |  |                    |        |                   |  |               |        |              
|Weighted average number of common shares-diluted     |  |                    | 57,705 |                   |  |               | 56,455 |               |  |   | 56,761 |  |  |   | 56,572 |  
|                                                     |  |                    |        |                   |  |               |        |               |  |   |        |  |  |   |        |  
|Net income (loss) per common share-basic and diluted |  | $                  | 0.02   |                   |  | $             | 0.00   |               |  | $ | 0.06   |  |  | $ | (0.04  | )
|                                                     |  |                    |        |                   |  |               |        |               |  |   |        |  |  |   |        |  

Basic income (loss) per share is computed by dividing net income (loss) by
the weighted average number of common shares outstanding during the period.
Diluted income (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. Of the options to purchase shares of common stock
outstanding as of September 27, 2003, options covering 225 shares and 3,211
shares of common stock were not included in the computation of the diluted
income per share for the three-month and nine-month periods ending September
27, 2003, respectively, as their inclusion would be antidilutive. Of the
options to purchase shares of common stock outstanding as of September 28,
2002, options covering 6,679 shares for the three-month period and all options
for the nine-month period were excluded from the computation of diluted net
income (loss) per share as their inclusion would be antidilutive.

12. Business Segment and Geographical Data

We organize and manage our business by functional operating entities
operating in two segments: Cardiovascular and ITC. The Cardiovascular segment
develops, manufactures and markets proprietary medical devices used for
circulatory support and vascular graft applications. The ITC segment develops,
manufactures and markets near-patient, whole-blood coagulation testing
equipment and related disposables, as well as single-use skin incision devices.

Business Segments:

|                                   |                                                        |                                   |     |                    |        |                   |     |               |        |               |       |        |         |  |       |        |        |  
|---------------------------------- | ------------------------------------------------------ | --------------------------------- | --- | ------------------ | ------ | ----------------- | --- | ------------- | ------ | ------------- | ----- | ------ | ------- |  | ----- | ------ | ------ | -
|                                   |                                                        |                                   |     | Three Months Ended |        | Nine Months Ended
|                                   |                                                        |                                   |     |                    |        |                  
|                                   |                                                        |                                   |     | September 27,      |        | September 28,     |     | September 27, |        | September 28,
|                                   |                                                        |                                   |     | 2003               |        | 2002              |     | 2003          |        | 2002         
|                                   |                                                        |                                   |     |                    |        |                   |     |               |        |              
|Product sales:                     |                                                        |                                   |     |                    |        |                   |     |               |        |               |       |        |         |  |       |       
|                                   | Cardiovascular                                         |                                   | $   | 21,331             |        |                   | $   | 19,650        |        |               | $     | 68,799 |         |  | $     | 58,171 |       
|                                   | ITC                                                    |                                   |     | 13,919             |        |                   |     | 11,455        |        |               |       | 38,670 |         |  |       | 33,608 |       
|                                   |                                                        |                                   |     |                    |        |                   |     |               |        |               |       |        |         |  |       |       
|                                   |                                                        | Total product sales               |     | $                  | 35,250 |                   |     | $             | 31,105 |               |       | $      | 107,469 |  |       | $      | 91,779 |  
|                                   |                                                        |                                   |     |                    |        |                   |     |               |        |               |       |        |         |  |       |        |       
|Income (loss) before income taxes: |                                                        |                                   |     |                    |        |                   |     |               |        |               |       |        |         |  |       |       
|                                   | Cardiovascular                                         |                                   | $   | 2,920              |        |                   | $   | 3,230         |        |               | $     | 10,161 |         |  | $     | 6,839  |       
|                                   | ITC                                                    |                                   |     | 2,967              |        |                   |     | 2,482         |        |               |       | 7,454  |         |  |       | 6,761  |       
|                                   | Corporate (a)                                          |                                   |     | (1,555             | )      |                   |     | (2,728        | )      |               |       | (4,376 | )       |  |       | (7,939 | )     
|Purchase accounting entries:       |                                                        |                                   |     |                    |        |                   |     |               |        |               |       |        |         |  |       |       
|                                   | Amortization of goodwill and purchased
intangibles (b) |                                   |     | (3,096             | )      |                   |     | (3,096        | )      |               |       | (9,288 | )       |  |       | (9,288 | )     
|                                   | Merger, restructuring and other costs (b)              |                                   |     |                  |        |                   |     | (32           | )      |               |       | 124    |         |  |       | (859   | )     
|                                   |                                                        |                                   |     |                    |        |                   |     |               |        |               |       |        |         |  |       |       
|                                   |                                                        | Total operating income (loss)     |     |                    | 1,236  |                   |     |               | (144   | )             |       |        | 4,075   |  |       |        | (4,486 | )
|Interest and other income, net     |                                                        |                                   | 218 |                    |        |                   | 536 |               |        |               | 1,379 |        |         |  | 1,022 |       
|                                   |                                                        |                                   |     |                    |        |                   |     |               |        |               |       |        |         |  |       |       
|                                   |                                                        | Income (loss) before income taxes |     | $                  | 1,454  |                   |     | $             | 392    |               |       | $      | 5,454   |  |       | $      | (3,464 | )
|                                   |                                                        |                                   |     |                    |        |                   |     |               |        |               |       |        |         |  |       |        |       



---

|(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 |        | Nine Months Ended
|               |                         |       |   |                    |        |                  
|               |                         |       |   | September 27,      |        | September 28,     |   | September 27, |        | September 28,
|               |                         |       |   | 2003               |        | 2002              |   | 2003          |        | 2002         
|               |                         |       |   |                    |        |                   |   |               |        |              
|Product sales: |                         |       |   |                    |        |                   |   |               |        |               |   |        |         |  |   |       
|               | Domestic                |       | $ | 28,662             |        |                   | $ | 25,312        |        |               | $ | 88,913 |         |  | $ | 75,196 |       
|               |                         |       |   |                    |        |                   |   |               |        |               |   |        |         |  |   |       
|               | Europe                  |       |   | 4,682              |        |                   |   | 3,992         |        |               |   | 12,920 |         |  |   | 10,639 |       
|               | All other international |       |   | 1,906              |        |                   |   | 1,801         |        |               |   | 5,636  |         |  |   | 5,944  |       
|               |                         |       |   |                    |        |                   |   |               |        |               |   |        |         |  |   |       
|               | Total international     |       |   | 6,588              |        |                   |   | 5,793         |        |               |   | 18,556 |         |  |   | 16,583 |       
|               |                         |       |   |                    |        |                   |   |               |        |               |   |        |         |  |   |       
|               |                         | Total |   | $                  | 35,250 |                   |   | $             | 31,105 |               |   | $      | 107,469 |  |   | $      | 91,779 | 
|               |                         |       |   |                    |        |                   |   |               |        |               |   |        |         |  |   |        |       

13. Legal Matters

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In May 2003, a patent infringement complaint was filed against us by
Bodycote Materials Testing Canada, Inc. and David C. MacGregor, M.D. In
addition to filing response motions to the complaint, we have filed a
counter-suit against the plaintiffs. We are currently evaluating the claims set
forth in the complaint as well as the validity of the plaintiffs underlying
patents. As a result, an estimate of any potential loss or range of losses
cannot be made at this time. However, we intend take all necessary steps to
appropriately defend ourselves against the claims set forth in the complaint.

14. Subsequent Events

On September 30, 2003, we completed our previously announced asset purchase
agreement to acquire the Immediate Response Mobile Analysis, or IRMA,
point-of-care blood analysis system product line from Diametrics Medical, Inc.
(Diametrics). We paid approximately $5 million in cash and assumed certain
trade payables related to the assets.

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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 manage current and future growth, including the
integration of the recently acquired IRMA product line, the ability to
successfully market the Destination Therapy indication, the ability to improve
financial performance, the results of current or future litigation, the impact
of new accounting pronouncements, and other factors identified in our Annual
Report on Form 10-K for 2002 which we filed with the Securities and Exchange
Commission, or the SEC. Readers are urged to consider these factors carefully
in evaluating the forward-looking statements. The forward-looking statements
included in this Form 10-Q are made only as of the date of this report and we
undertake no obligation to publicly update these forward-looking statements to
reflect subsequent events or circumstances.

The following presentation of managements discussion and analysis of our
financial condition and results of operations should be read together with our
consolidated financial statements included in this Form 10-Q, and our Annual
Report on Form 10-K for 2002 filed with the SEC

Overview

We are a leading manufacturer of circulatory support products for use by
patients with congestive heart failure, or CHF. We were the first company to
receive U.S. Food and Drug Administration, or FDA, approval to commercially
market a ventricular assist device, or VAD, to treat patients with late-stage
heart failure, which comprises approximately 5% to 10% 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. 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

The Merger of Thoratec with Thermo Cardiosystems, Inc., or TCA, was
completed on February 14, 2001. We issued new shares of our common stock to the
shareholders of TCA in exchange for all the outstanding common stock of TCA at
an exchange ratio of 0.835 shares of Thoratec stock for each share of TCA
stock. The Merger was accounted for as a reverse acquisition because former
shareholders of TCA owned a majority of our outstanding stock subsequent to the
Merger. For accounting purposes, TCA is deemed to have acquired Thoratec.

Recent Events

In May 2003, a patent infringement claim was filed against us by Bodycote
Materials Testing Canada, Inc. and David C. MacGregor, M.D. In addition to
filing response motions to the complaint, we have filed a counter-suit against
the plaintiffs. We are currently evaluating the claims set forth in the
complaint as well as the validity of the plaintiffs underlying patents. As a
result, an estimate of any potential loss or range of loss cannot be made at
this time. We intend to vigorously defend ourselves against the claims set
forth in the complaint.

On July 28, 2003, we received CE Mark certification, which provides us
with approval to market our Thoratec Implantable Ventricular Assist Device, or
IVAD, in Europe. The IVAD is the only currently approved implantable cardiac
assist device that can provide left, right or biventricular support.

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On September 30, 2003, we completed our previously announced asset
purchase agreement to acquire the Immediate Response Mobile Analysis, or IRMA,
point-of-care blood analysis system product line from Diametrics Medical, Inc.
(Diametrics). We paid approximately $5 million in cash and assumed certain
trade payables related to the assets.

On October 1, 2003 the Centers for Medicare & Medicaid Services, or CMS,
issued a National Coverage Decision Memorandum for the use of left ventricular
assist systems, or LVAS, that are approved by the FDA for treating Destination
Therapy in end-stage heart failure patients. Our HeartMate XVE LVAS is
currently the only such device approved for Destination Therapy by the FDA.
Additionally, on October 21, 2003, CMS indicated that the effective date
for this coverage is October 1, 2003.

Results of Operations

Three months ended September 2003 and 2002

Product Sales

Product sales in the third quarter of 2003 were $35.3 million compared to
$31.1 million in the third quarter of 2002, an increase of $4.2 million or 13%.
This increase is attributable to increases in the domestic and international
prices of all VAD products and increased volumes of the HeartMate XVE product
totaling $1.5 million, and higher volume of blood coagulation testing equipment
sales of $2.5 million.

Gross Profit

Gross profit was $21.0 million, representing 60% of product sales, for the
third quarter of 2003 compared to $18.1 million, representing 58% of product
sales, for the third quarter of 2002. In addition to the impact of the sales
changes described above, the increase in gross profit percentage resulted from
increased manufacturing efficiencies and lower merger related employee
retention costs, partially offset by lower average selling prices on blood
coagulation testing equipment and incision products.

Selling, General and Administrative

Selling, general and administrative expenses increased to $10.6 million,
or 30% of product sales, in the third quarter of 2003, from $9.1 million, or
29% of product sales, in the third quarter of 2002. Selling, general and
administrative expenses were generally consistent as a percentage of sales from
period to period. The increased expense dollars were primarily due to higher
employee related costs, expenses related to increased marketing and
reimbursement efforts and higher professional fees.

Research and Development

Research and development expenses increased to $6.1 million, or 17% of
product sales, in the third quarter of 2003, from $5.9 million, or 19% of
product sales, in the third quarter of 2002. This increase was primarily due to
slightly higher spending on certain cardiovascular projects.

Amortization of Goodwill and Purchased Intangible Assets

Amortization of identified purchased intangible assets remained consistent
from the third quarter of 2002 to the third quarter of 2003 at $3.1 million.
Intangible assets are being amortized over their estimated useful lives of
eight to twenty years.

Merger, Restructuring and Other Costs

Merger, restructuring and other costs in the third quarter of 2003 were
nil, compared to $32,000 in the third quarter of 2002. Restructuring activities
and related expenses were completed in the second quarter of 2003 and the
restructuring accrual was reduced to reflect no remaining liability as of the
end of the second quarter of 2003. Merger activities and related expenses were
completed in the third quarter of 2002.

Interest and Other Income - Net

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Interest and other income-net decreased to $0.2 million in the third
quarter of 2003 from $0.5 million in the third quarter of 2002. This decrease
was primarily attributable to a decrease in interest income due to lower
interest rates and foreign currency exchange losses.

Income Taxes

Our effective income tax expense rate was 39% for the three-month period
ended September 27, 2003. For the three-month period ended September 28, 2002
our effective income tax rate was 40%. The effective income tax expense rate
for both the current and prior fiscal quarters differed from the statutory
federal income rate primarily due to the impact of state taxes.

Nine months ended September 2003 and 2002

Product Sales

Product sales in the first nine months of 2003 were $107.5 million
compared to $91.8 million in first nine months of 2002, an increase of $15.7
million or 17%. This increase is primarily attributable to an increase in both
the average selling price and sales volume of VAD units sold both domestically
and internationally totaling $9.2 million, higher sales of graft products of
$1.4 million and higher sales of blood coagulation testing equipment products
of $5.1 million

Gross Profit

Gross profit was $63.7 million, representing 59% of product sales for the
first nine months of 2003 compared to $52.3 million, representing 57% of
product sales for the first nine months of 2002. In addition to the impact of
the sales changes described above, the increase in gross profit percentage
resulted from increased manufacturing efficiencies and lower merger-related
employee retention costs, partially offset by lower average selling prices on
blood coagulation testing equipment and incision products.

Selling, General and Administrative

Selling, general and administrative expenses increased to $31.8 million,
or 30%, of product sales in the first nine months of 2003 from $27.7 million,
or 30% of product sales, in the first nine months of 2002. Selling, general and
administrative expenses were consistent as a percentage of sales from period to
period. The increased expense dollars were primarily due to higher employee
related costs, expenses related to increased marketing and reimbursement
efforts, business development expenses, higher insurance premiums and increases
in professional fees.

Research and Development

Research and development expenses decreased to $18.6 million, or 17% of
product sales, in the first nine months of 2003, from $18.9 million, or 21% of
product sales, in the first nine months of 2002. This decrease was primarily
due to slightly lower spending on certain cardiovascular projects.

Amortization of Goodwill and Purchased Intangible Assets

Amortization of identified purchased intangible assets remained consistent
from the first nine months of 2002 to the first nine months of 2003 at $9.3
million. Intangible assets are being amortized over their estimated useful
lives of eight to twenty years.

Merger, Restructuring and Other Costs

Merger, restructuring and other costs in the first nine months of 2003
were $0.1 million of reduction in expense, compared to $0.9 million in the
first nine months of 2002. Restructuring activities and related expenses were
completed in the second quarter of 2003 and the restructuring accrual was
reduced to reflect no remaining liability as of the end of the second quarter
of 2003. Merger activities and related expenses were completed in the third
quarter of 2002.

Interest and Other Income - Net

Interest and other income-net was $1.4 million in the first nine months of
2003 compared to $1.0 million in the first nine months of 2002. This increase
is primarily due to a decrease in interest and other expenses related to the
repayment of our subordinated

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debentures and related write-off of unamortized debt issuance costs in the
first quarter of 2002. This decrease was partially offset by lower interest
income in the first nine months of 2003 due to lower interest rates.

Income Taxes

Our effective tax provision rate was 39% for the nine months ended
September 27, 2003. For the nine months ended September 28, 2002, our effective
tax benefit rate was 40%. The effective income tax expense rate for 2003 and
the effective tax benefit rate for 2002 differed from the statutory federal
income tax rate primarily due to the impact of state taxes.

Liquidity and Capital Resources

At September 27, 2003, we had working capital of $119.0 million compared
with $108.0 million at December 28, 2002. Cash and cash equivalents at
September 27, 2003 were $62.5 million compared to $45.5 million at December 28,
2002, an increase of $17.0 million.

During the first nine months of 2003, cash provided by operating
activities was $24.2 million. This resulted from the combination of our net
income of $3.3 million and $14.2 million of items not affecting 2003 cash
flows, primarily depreciation and amortization expenses and changes in working
capital of $6.7 million. The change in working capital in the first nine months
of 2003 was due principally to decreases in accounts receivable and inventory
and an increase in accounts payable and other liabilities, partially offset by
an increase in prepaid expenses and other assets. Net cash provided by
operating activities was $25,000 during the first nine months of 2002. This
resulted from the combination of our net loss of $2.1 million and $10.2 million
of items not affecting 2002 cash flows, primarily depreciation and amortization
expenses, less changes in working capital of $8.1 million.

During the first nine months of 2003, $11.6 million of cash was used in
our investing activities compared to $6.1 million of cash provided in the first
nine months of 2002. During the first nine months of 2003, we purchased $14.1
million in short-term and long-term investments and $4.2 million of cash was
used for capital expenditures. These uses of cash for investing activities were
partially offset by sales of short-term and long-term investments of $6.7
million. Cash provided in the first nine months of 2002 was due to the
reclassification of $45.9 million from restricted cash to retire our
subordinated debentures, partially offset by $34.3 million used for purchases
of short-term and long-term investments and $5.5 million used for capital
expenditures.

During the first nine months of 2003, $7.8 million of cash was provided by
financing activities compared to $57.2 million of cash used in financing
activities in the first nine months of 2002. Cash provided in the first nine
months of 2003 was due to proceeds from the exercise of common stock options
and stock purchased under our employee stock purchase plan. Cash used in the
first nine months of 2002 was due to $54.8 million used to retire our
subordinated debentures and $18.3 million used to repurchase our common stock,
partially offset by $15.5 million net proceeds received in a public stock
offering and $0.6 million provided from exercises of common stock options.

We believe that our 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 may
elect to raise funds in the capital markets to provide for future expansion of
the business.

The impact of inflation on our financial position and results of
operations was not significant during the three and nine-month periods ended
September 27, 2003 and September 28, 2002.

Critical Accounting Policies

Accounting policies we believe to be critical to the understanding of our
results of operations are discussed below and in our fiscal 2002 consolidated
financial statements filed with the SEC in our annual report on Form 10-K.

In April 2002, the FASB issued SFAS No. 145, (Rescission of FASB
Statements 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections) 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 No. 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 adopted SFAS No. 145 at the beginning
of fiscal year 2003. Upon adoption, we reclassified the extraordinary loss
incurred in 2002 of $0.5 million to Interest and Other Income-Net.

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In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation-Transition and Disclosure. We adopted the disclosure
provisions of SFAS No. 148 at the beginning of fiscal 2003. Currently we are
evaluating the impact of the adoption of the use of the fair value based method
of accounting for stock-based employee compensation on our financial position,
results of operations and cash flows.




ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK

Interest Rate Risk

Our investment portfolio is made up of cash equivalent and marketable
security investments in money market funds and debt instruments of government
agencies and high quality corporate issuers. All investments are carried at
market value and are treated as available-for-sale. All investments mature
within two years or less from the date of purchase. The holdings of any one
issuer, except government agencies, do not exceed 10% of the portfolio. If
interest rates rise, the market value of our investments may decline which
could result in a loss if we are forced to sell an investment before the
scheduled maturity. We do not utilize derivative financial instruments to
manage interest rate risks.

Foreign Currency Risk

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 assets and liabilities 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, which are included in Interest and Other Income-Net.

During the three-month period ended September 27, 2003, the Company began
using forward foreign currency contracts to hedge the gains and losses
generated by the remeasurement of these non-functional currency assets and
liabilities. These derivatives are not designated as cash flow or fair value
hedges under SFAS No. 133. As a result, changes in the fair value of the
forward foreign currency contracts are included as incurred in Interest and
Other IncomeNet. The change in the fair value of the forward foreign
currency contracts typically offsets the change value from revaluation of the
non-functional currency assets and liabilities. These contracts typically have
maturities of three months or less. At September 27, 2003, the Company had
forward foreign currency contracts to exchange Pounds Sterling and Euros for US
Dollars with a fair value of $4.6 million. The change from the
notional value was insignificant.




ITEM 4. CONTROLS AND PROCEDURES

An evaluation was performed under the supervision and with the
participation of our management, including our Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation of
our disclosure controls and procedures as of September 27, 2003. Based on that
evaluation, our management, including the Chief Executive Officer and Chief
Financial Officer, concluded that as of September 27, 2003 the Companys
disclosure controls and procedures were effective in providing reasonable
assurance that information required to be disclosed by the Company in the
reports that it files or submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SECs rules
and forms. There have been no changes in our internal controls during the
fiscal quarter ended September 27, 2003 that have materially affected or are
reasonably likely to materially affect the Companys internal control over
financial reporting.

Our management, including the Chief Executive Officer and the Chief
Financial Officer, do not expect that the disclosure controls and procedures or
internal controls will prevent all error and all fraud. A control system, no
matter how well conceived and operated, can only provide reasonable assurances
that the objectives of the control system are met. The design of a control
system reflects resource constraints; the benefits of controls must be
considered relative to their costs. Because there are inherent limitations in
all control systems, no evaluation of controls can provide absolute assurance
that all control issues and instances of fraud, if any, within the Company have
been or will be detected. These inherent limitations include the realities that
judgments in decision-making can be faulty and that breakdowns occur because of
simple error or mistake. Controls can be circumvented by the individual acts of
some persons, by collusion of two or more people, or by management override of
the control. The design of any system of controls is based in part upon certain
assumptions about the likelihood of future events. There can be no assurance
that any design will succeed in achieving its stated goals under all future
conditions; over time, controls may become inadequate because of changes in
conditions or deterioration in the degree of compliance with the policies or
procedures. Because of the inherent limitations in a cost-effective control

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system, misstatements due to error or fraud may occur and not be detected.

We intend to review and evaluate the design and effectiveness of our
disclosure controls and procedures on an ongoing basis and to improve our
controls and procedures over time and to correct any deficiencies that we may
discover in the future. Our senior management has timely access to all material
financial and non-financial information concerning our business. While we
believe the present design of our disclosure controls and procedures is
effective, future events affecting our business may cause us to significantly
modify our disclosure controls and procedures.




PART II. OTHER INFORMATION




ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits:

| |      |  |                                                                                  
| | ---- |  | ---------------------------------------------------------------------------------
| | 31.1 |  | Section 302 Certifications of Chief Executive Officer and Chief Financial Officer
| |      |  |                                                                                  
| | 32.1 |  | Section 906 Certifications of Chief Executive Officer and Chief Financial Officer

(b)  Reports on Form 8-K:

On July 21, 2003, the Company filed a Current Report on Form 8-K,
regarding the announcement of the acquisition of certain assets from Diametrics
Medical, Inc. by the Companys subsidiary, International Technidyne
Corporation.

On July 22, 2003, the Company filed a Current Report on Form 8-K,
reporting under items 7, 9 and 12, announcing the Companys results for the
fiscal quarter ended June 28, 2003.

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SIGNATURES

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

|                        |  |                                             
|----------------------- |  | --------------------------------------------
|                        |  | THORATEC CORPORATION                        
|                        |  |                                             
|Date: November 10, 2003 |  | /s/ D. Keith Grossman                       
|                        |  |                                             
|                        |  | D. Keith Grossman,                          
|                        |  | Chief Executive Officer                     
|                        |  |                                             
|Date: November 10, 2003 |  | /s/ M. Wayne Boylston                       
|                        |  |                                             
|                        |  | M. Wayne Boylston,                          
|                        |  | Senior Vice President,                      
|                        |  | Chief Financial Officer and Secretary       
|                        |  | (Principal Financial and Accounting Officer)

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Exhibit Index

|            |  |                                                                                  
|----------- |  | ---------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                      
|            |  |                                                                                  
|31.1        |  | Section 302 Certifications of Chief Executive Officer and
Chief Financial Officer
|            |  |                                                                                  
|32.1        |  | Section 906 Certifications of Chief Executive Officer and
Chief Financial Officer

21