##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION


Washington, D.C. 20549




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Form 10-K





|           |  |                                                                                     
|---------- |  | ------------------------------------------------------------------------------------
|(Mark one) |  |                                                                                     
|þ          |  | ANNUAL REPORT UNDER SECTION 13 OR 15(d)
	OF THE SECURITIES EXCHANGE ACT OF 1934     
|           |  | For the fiscal year ended December 29,
	2001                                        
|          
|o          |  | TRANSITION REPORT UNDER SECTION 13
	OR 15(d)
	OF THE SECURITIES EXCHANGE ACT OF 1934
|           |  | For the transition period
	from                to                .                  

Commission file number: 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

Securities registered pursuant to
Section 12(b) of the Exchange Act: None

Securities registered pursuant to
Section 12(g) of the Exchange Act: Common Stock

Indicate by a 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
þ          No
o

Indicate by a check mark if disclosure of
delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be
contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to
this
Form 10-K.     þ

The aggregate market value of the voting stock
held by non-affiliates was $572,000,000 computed by reference to
the last sale reported of such stock on March 8, 2002 as
listed on The Nasdaq National Stock Market.(1)

As of March 8, 2002, registrant had
57,229,146 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Designated portion of Thoratecs definitive
proxy statement for its 2002 annual meeting of shareholders are
incorporated by reference into Part III of this
Form 10-K.



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|    |                                                                                                                                                                                                                                                                                           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Exclusion of shares held by any person should not
	be construed to indicate that such person possesses the power,
	direct or indirect, to cause the direction of the management or
	policies of the issuer, or that such person is controlled by or
	under common control with the issuer.



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FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K, including
the documents incorporated by reference in this Annual Report,
includes forward-looking statements. We have based these
forward-looking statements on our current expectations and
projections about future events. Our actual results could differ
materially from those discussed in, or implied by, these
forward-looking statements. Forward-looking statements are
identified by words such as believe,
anticipate, expect, intend,
plan, will, may and other
similar expressions. In addition, any statements that refer to
expectations, projections or other characterizations of future
events or circumstances are forward-looking statements.
Forward-looking statements include, but are not necessarily
limited to, those relating to:



| |   |                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------
| |  | our ability to obtain and maintain regulatory
	approval of our products in the United States and
	internationally;       
|
| |  | results and timing of our clinical trials,
	including the results of the REMATCH trial and publication of
	those results;
|
| |  | the other competing therapies that may, in the
	future, be available to heart failure patients;                          
|
| |  | our plans to develop and market new products;                                                                            
|
| |  | our ability to improve our financial performance;
	and                                                                   
|
| |  | effects of the merger and integration with Thermo
	Cardiosystems Inc., which we refer to as Thermo Cardiosystems or
	TCA.

Factors that could cause actual results or
conditions to differ from those anticipated by these and other
forward-looking statements include those more fully described in
the Risk Factors section and in other documents we
file with the Securities and Exchange Commission, including the
prospectus, as amended and supplemented, contained in the
Registration Statement on Form S-3 that we filed on
February 12, 2002. We are not obligated to update or revise
these forward-looking statements to reflect new events or
circumstances.

You should assume that the information appearing
in this Annual Report on Form 10-K is accurate only as of
the date on the front cover. Our business, financial condition,
results of operations and prospects may have changed since that
date.

Thoratec, the Thoratec logo, Thoralon, TLC-II,
HeartMate, HeartPak and Vectraare registered trademarks,
and Aria is a trademark of Thoratec Corporation.

HEMOCHRON, ProTime, Surgicutt, Tenderlett and
Tenderfoot are registered trademarks of International Technidyne
Corporation, or ITC, our wholly-owned subsidiary.

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TABLE OF CONTENTS



|                                                   |                                                                                               |  |  |  |  |  |  | 
|-------------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                            
|                                                   | Item 1. Business                                                                             
|                                                   | Item 2. Properties                                                                           
|                                                   | Item 3. Litigation                                                                           
|                                                   | Item 4. Submission of Matters to a Vote of Security Holders                                  
|PART II                                           
|                                                   | Item 5. Market for Common Equity and Related Stockholder Matters                             
|                                                   | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                   | Item 7A. Quantitative and Qualitative Disclosures About Market Risk                          
|                                                   | Item 8. Financial Statements and Supplementary Data                                          
|                                                   | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
|PART III                                          
|                                                   | Item 10. Directors and Executive Officers of the Registrant                                  
|                                                   | Item 11. Executive Compensation                                                              
|                                                   | Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|                                                   | Item 13. Certain Relationships and Related Transactions                                      
|PART IV                                           
|                                                   | Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K                    
|SIGNATURES                                        
|Addition to a Lease Dated the 16th of August, 1995
|Employment Agreement                              
|Subsidiaries of Thoratec                          
|Consent of Deloitte & Touche LLP                  
|Consent of Arthur Andersen LLP                    



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TABLE OF CONTENTS

|              |  |                                                                                        |    |      |    | 
|------------- |  | -------------------------------------------------------------------------------------- | -- | ---- | -- | 
|              |  |                                                                                        |    | Page
|              |  |                                                                                        |    |     
|PART I       
|Item 1.       |  | Business                                                                               |    |      | 1  | 
|Item 2.       |  | Properties                                                                             |    |      | 23 | 
|Item 3.       |  | Litigation                                                                             |    |      | 23 | 
|Item 4.       |  | Submission of Matters to a Vote of Security
	Holders                                   |    |      | 23 | 
|PART II      
|Item 5.       |  | Market for Common Equity and Related Stockholder
	Matters                              |    |      | 25 | 
|Item 6.       |  | Selected Consolidated Financial Data                                                   |    |      | 26 | 
|Item 7.       |  | Managements Discussion and Analysis of
	Financial Condition and Results of Operations |    |      | 27 | 
|Item 7A.      |  | Quantitative and Qualitative Disclosures About
	Market Risk                            |    |      | 38 | 
|Item 8.       |  | Financial Statements and Supplementary Data                                            |    |      | 40 | 
|Item 9.       |  | Changes in and Disagreements With Accountants on
	Accounting and Financial Disclosure  |    |      | 70 | 
|PART III     
|Item 10.      |  | Directors and Executive Officers of the Registrant                                     |    |      | 71 | 
|Item 11.      |  | Executive Compensation                                                                 |    |      | 71 | 
|Item 12.      |  | Security Ownership of Certain Beneficial Owners
	and Management                        |    |      | 71 | 
|Item 13.      |  | Certain Relationships and Related Transactions                                         |    |      | 71 | 
|PART IV      
|Item 14.      |  | Exhibits, Financial Statement Schedules and
	Reports on Form 8-K                       |    |      | 72 | 
|Exhibit Index |  |                                                                                        | 76 |     

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PART I




Item 1.     Business

Overview

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

We develop and market products that are used by
physicians and hospitals for cardiac assist, vascular and
diagnostic applications. Our three types of products are:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Circulatory support products.Our circulatory support products
	include ventricular assist devices for the short-term and
	long-term treatment of congestive heart failure. Our products
	address more indications than the products of any other cardiac
	assist device company.                                                                                                                          
|
| |  | Vascular graft products.We have developed small diameter
	grafts to address the vascular access and coronary bypass
	surgery markets. These grafts use our proprietary materials that
	are designed to improve performance. Our grafts are sold in the
	United States and internationally for use in hemodialysis
	patients and are currently in clinical trials for coronary
	artery bypass applications.
|
| |  | Blood coagulation testing and skin incision
	devices.We have a leading market
	position for devices that monitor blood coagulation and perform
	blood-screening analysis for patients undergoing various
	surgical procedures. We also offer a family of single-use skin
	incision devices used to create a blood sample.                                                                                 

Our ventricular assist devices are regarded as
the most versatile and widely used circulatory support systems
for patients with late-stage CHF. We currently market devices
that may be implanted or worn outside the body and that are
suitable for treatments of different durations for patients of
varying sizes and ages. We estimate that our VADs have treated
nearly 5,000 patients. Our devices are currently used
primarily for patients awaiting a heart transplant or recovering
from open heart surgery. However, we are pursuing approval to
use our VADs in other indications, including as an alternative
to maximum drug therapy, which we call destination therapy, for
CHF patients who are not eligible for a heart transplant and for
therapeutic recovery to partially reverse the complications of
late-stage heart failure in certain patients. We estimate the
combined market size for these indications could be over 200,000
patients annually in the United States alone. We have submitted
Pre-Market Approval, or PMA, Supplements for both these
indications and expect to receive FDA approvals for each by the
end of 2002.

On February 14, 2001, we completed our
merger with Thermo Cardiosystems, or TCA, a Massachusetts-based
manufacturer of cardiac assist, blood coagulation testing and
skin incision devices, which we refer to as the Merger. As a
result of the Merger, we substantially increased the size of our
company and became a leading provider of circulatory support
products worldwide. We now sell VADs to virtually every leading
heart transplant center worldwide and we market three out of the
four VADs approved by the FDA as a bridge to heart transplant.
At the time of the Merger, we changed our name from Thoratec
Laboratories Corporation to Thoratec Corporation. Immediately
after the Merger, the parent company of TCA, Thermo Electron
Corporation, or Thermo Electron, owned approximately 35% of our
outstanding stock. As of the date of this report, Thermo
Electron owns approximately 14% of our total outstanding common
stock.

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The REMATCH Trial

On November 12, 2001, the results of a
clinical trial called REMATCH, or Randomized Evaluation of
Mechanical Assistance for the Treatment of Congestive Heart
Failure, were presented at the American Heart Association
Scientific Sessions and the results were published in a website
edition of The New England Journal of Medicine. The REMATCH
trial, which cost approximately $25 million according to
one of the trial sponsors, was a collaboration among the
National Institutes of Health, or NIH, as lead sponsor, Columbia
University and our company. We were a partial sponsor of the
REMATCH trial, providing approximately $3.6 million of
financial support and all necessary VADs and related equipment.

The REMATCH trial results, as published in the
New England Journal of Medicine, involved 129 late-stage
CHF patients who, because of their ages or other diseases, were
not eligible to receive one of the very limited supply of donor
organs for heart transplantation. The study was independently
coordinated by Columbia University at 21 prestigious
transplant centers in the United States. Patient enrollment for
the initial study protocol began in 1998 and concluded in June
2001. The overall purpose of the study was to evaluate the
efficacy, safety and cost effectiveness of our HeartMate
ventricular assist device versus optimal medical management,
which we call maximum drug therapy. The REMATCH
publication provided a detailed evaluation of survivability,
device safety and impact on patient quality of life.

Results from the REMATCH trial showed a
significant survival benefit and improved quality of life for
patients using the HeartMate compared to maximum drug therapy.
The study showed the overall probability of one-year survival
for those on the HeartMate was 52% versus 25% for patients
treated with maximum drug therapy. The one year survival rates
for patients younger than 60 years old was 74% for those
patients on the HeartMate and 33% for those treated with maximum
drug therapy. The one year survival rates for patients
60 to 69 years old was 47% for those patients on the
HeartMate and 15% for those treated with maximum drug therapy.
Two-year survival rates are estimated to be 23% for patients on
the HeartMate and 8% for those treated with maximum drug
therapy. The median length of survival was approximately
408 days for those on the HeartMate and 150 days for
those treated with maximum drug therapy. The frequency of
serious adverse events for patients in the HeartMate group was
2.35 times greater than for patients in the maximum drug therapy
group, with a predominance of infection, bleeding and
malfunction of the device. Some of these adverse events
experienced by patients on the HeartMate included an ischemic
stroke in approximately 10% of the patients, half of which were
major.

The overall quality of life, as measured by the
patients emotional state, whether or not they were
depressed, and their mobility, was significantly higher at one
year for patients on the HeartMate than for those treated with
maximum drug therapy. For example, as measured by the Medical
Outcomes Study Short-Form General Health Survey, on a
variable score from 0-100, the physical function mean score of
patients on the HeartMate was approximately 45 compared to
approximately 20 for patients on maximum drug therapy. This
survey also showed that the emotional state mean score of
patients on the HeartMate was approximately 65 compared to 18
for patients on maximum drug therapy. At the time the results of
the REMATCH trial were published there were 27 HeartMate
patients still alive, versus 7 patients receiving maximum
drug therapy.

Based on a review of these data, the FDA approved
an Investigational Device Exception, or IDE, Supplement allowing
up to 30 additional non-randomized patients to be implanted
with the HeartMate for destination therapy. This IDE Supplement
also permits patients who were being treated with maximum drug
therapy in the original study to be implanted with the HeartMate.

On October 16, 2001, we submitted a PMA
Supplement for the HeartMate for destination therapy for
patients suffering from late-stage CHF. On November 29,
2001 we received notification from the FDA that it expedited the
review of our PMA Supplement. On March 4, 2002, the FDA
Circulatory System Devices Advisory Panel, or the Panel, met to
review our PMA Supplement. Based on results of the REMATCH
trial, the Panel recommended that the FDA approve our PMA
Supplement, with conditions, to provide long-term support for
end-stage heart failure patients who are not eligible for heart
transplantation. We and our REMATCH collaborators will be
working to address the conditions outlined by the Panel. We have
already

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initiated discussions with the Centers for
Medicare and Medicaid Services, formerly HCFA, regarding
reimbursement coverage for use of the HeartMate in this
treatment.


We believe that this new application for our
HeartMate device represents a market opportunity of up to
100,000 additional patients annually in the United States alone,
which would represent a significant increase over our existing
customer base. For these patients, maximum drug therapy is
currently the only treatment available and, even with drug
therapy, the 12-month mortality rate for these patients is 75%.
We believe that the HeartMate will provide a significant
survival benefit for this patient population.

Other Recent Developments

On January 23, 2002, we announced a plan to
redeem all of our outstanding 4.75% convertible subordinated
debentures originally issued by Thermo Cardiosystems. We
completed the redemption on March 11, 2002 using our
restricted cash and cash equivalents of $45.9 million and cash
of $9.8 million. We will record an extraordinary loss in the
first quarter of 2002 related to the write-off of capitalized
debt issuance costs associated with the initial issuance of the
debentures, which were being amortized over the life of the
debentures. As of December 29, 2001, the remaining balance
of capitalized debt issuance costs was $0.5 million.

Pursuant to the terms of a registration rights
agreement between us and Thermo Electron dated October 3,
2000, we filed a Registration Statement on Form S-3 with
the SEC to register 1,055,000 newly issued shares of our common
stock and to register for resale 5,945,000 shares of our common
stock held by selling shareholders, of which 5,825,000 shares
were held by Thermo Electron. This Registration Statement became
effective on February 12, 2002 and all of the shares were
sold on February 15, 2002. We received $16.1 million,
net of underwriting fees and discounts, but before other
expenses of the offering, from the sale of the 1,055,000 newly
issued shares. In addition, the underwriters exercised a 30-day
option to purchase from Thermo Electron 1,050,000 additional
shares of our common stock to cover any over-allotments. We
received no proceeds from the sale of shares by selling
shareholders or from the sale of the over-allotment shares. As
of the date of this report, Thermo Electron currently owns
approximately 14% of our total outstanding shares.

Our Strategy

We are a leading developer and manufacturer of
medical devices for the CHF, cardiac surgery and vascular graft
markets. Our key strategies to maintain and expand this
leadership position are to:

Obtain Approval for New Indications for our
Products.We believe that there are
currently 4.7 million patients in the United States with
CHF and that some of these patients who are currently not using
ventricular assist devices can benefit from our products. We are
in the process of obtaining FDA approvals to market our products
for a number of new indications, including the following:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Destination therapy.We have filed a PMA Supplement
	with the FDA to obtain approval to market the HeartMate for
	destination therapy for treating late-stage CHF patients who are
	not candidates for heart transplants. We anticipate that we
	could receive FDA approval in 2002 and can be marketing for this
	indicated use shortly thereafter.                                                  
|
| |  | Therapeutic recovery.We believe that the use of our
	Thoratec VAD system may lead to recovery of the natural heart in
	certain patients. We have submitted a PMA Supplement for this
	indication and hope to receive approval in 2002. Although it is
	difficult to estimate the size of this market, we believe that
	the patient population that could benefit from this use could be
	substantial.

Increase Penetration of Existing Markets.We plan to treat a greater number and
variety of patients within our current customer base. To
accomplish this, we are leveraging our existing relationships
with leading cardiac surgeons and hospitals and utilizing our
existing sales channels to gain acceptance and adoption of our
products.

Leverage Benefits of our Merger with TCA.We believe that our Merger resulted in
substantial and significant strategic benefits including our
ability to combine sales forces and share research and
development and manufacturing resources. For example, we are in
the process of consolidating our VAD manufacturing facilities
into our Pleasanton facility, which we expect will result in
significant cost savings. In addition,

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integrating our sales force with TCAs sales
force has created cross-selling opportunities to further
penetrate our markets. Prior to the Merger, each company had
different sales forces selling our respective products to
different hospitals and surgeons. By combining our distribution
channels, we are now able to offer the combined Companys
products to a greater number of hospitals, surgeons and patients.


Offer a Broad Range of Product Solutions.We believe that our broad and diverse
product offering is an important competitive advantage because
it allows us to address the various preferences of surgeons and
the clinical needs of a wide variety of patients, as well as the
economic needs and concerns of third party payors. An important
part of our growth strategy is to further broaden our product
line to meet customer needs by developing new products
internally or acquiring or licensing new products. We intend to
further develop a number of new or improved products including
next generation versions of both our HeartMate and Thoratec VAD.

Focus On and Partner with Leading Heart
Centers.We have developed extremely
strong, long-standing relationships with leading cardiovascular
surgeons and heart centers worldwide. We believe that no other
cardiac assist company enjoys the same depth of relationship and
access to these customers. Maintaining and expanding these
relationships is an important part of our growth strategy,
particularly for the development and introduction of new
products and the pursuit of additional indications for our
existing products.

Grow Internationally.In 2001, 20% of our revenue was
derived from sources outside of the United States. We estimate
that the international market opportunity for our products is at
least as large as the market opportunity in the United States.
Our recent Merger greatly expanded our international presence,
particularly in Japan and Latin America. We plan to continue to
grow internationally by leveraging our combined distribution
channels and by developing marketing strategies on a
country-by-country basis.

Our Markets

The primary markets for our VAD products are
those patients suffering from heart failure, and in particular,
from CHF. CHF is a chronic disease that occurs when degeneration
of the heart muscle reduces the pumping power of the heart,
causing the heart to become too weak to pump blood at a level
sufficient to meet the bodys demands. CHF can be caused by
artery or valve diseases or a general weakening of the heart
muscle itself. In addition, other conditions, such as high blood
pressure or diabetes, can also lead to CHF.

According to the American Heart Association, or
the AHA, there are 4.7 million CHF patients in the United
States and approximately 550,000 new cases are diagnosed each
year. The AHA also estimates that approximately 50% of CHF
patients die within five years of diagnosis. We believe that the
number of patients suffering from CHF who could benefit from
some form of cardiac assist could be over 200,000 annually.
While the number of treatment options for CHF has increased in
recent years, the use of medication remains the most widely used
approach for treatment of the disease. These drug therapies
include ACE inhibitors, anti-coagulants and beta-blockers, which
facilitate blood flow, thin the blood or help the heart work in
a more efficient manner. Other procedures used to treat CHF
include angioplasty, biventricular pacing, valve replacement,
bypass and left ventricular reduction surgery.

Despite attempts to manage CHF through drug
therapy, there is currently only one curative treatment for the
disease  a heart transplant. Unfortunately, the
number of hearts available for transplant each year can meet the
needs of only a small number of the patients who need a heart
transplant. The United Network for Organ Sharing reported that
there were only 2,340 hearts available for transplant in the
United States in 1999. At any given time, there are
approximately 4,000 to 5,000 patients on the U.S. national
transplant waiting list and we believe a comparable number of
patients are waiting in Europe. The median wait for a donor
heart by patients on a heart transplant waiting list is
approximately nine months, and many patients have to wait as
long as one to two years before receiving one of the few donor
hearts available. In 1999, approximately 17% of such patients
died while waiting for a donor heart.

In the United States, there is currently one
FDA-approved indication for ventricular assist devices for
patients with CHF  as a bridge to heart transplant.
We are pursuing two additional indications for our VAD
products  for destination therapy and for therapeutic
recovery of the heart. If approved, these additional

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indications will represent larger market
opportunities than the current indication. Beyond the CHF
markets, ventricular assist devices are also approved for use
during recovery following coronary artery bypass graft, or CABG,
surgery. All four indications are summarized below.




| |                     
| | --------------------
| | Bridge to Transplant

Ventricular assist devices provide additional
cardiac support for patients who are in late-stage heart failure
waiting for a donor heart. Of the approximately 4,000 to 5,000
patients on the waiting list for a heart transplant in the
United States, we estimate that approximately 25% will receive a
ventricular assist device.

We believe that the percentage of patients
bridged to transplant continues to increase with surgeons
level of comfort with the technology, particularly for
longer-term support cases. There are currently four devices
approved in the United States as a bridge to transplant, three
of which are manufactured by us. We estimate that the bridge to
transplant indication represents a worldwide market opportunity
of up to 8,000 patients annually.



| |                    
| | -------------------
| | Destination Therapy

We are pursuing approval to use our VAD for
destination therapy for patients with late-stage CHF who are not
candidates for heart transplantation due to other degenerative
illnesses or advanced age. We believe that the success in
transitioning this market from maximum drug therapy to
ventricular assist devices is dependent on the development of
VADs, like our HeartMate, with substantial longevities and proof
of clinical efficacy.

The results of the REMATCH trial were presented
at the American Heart Association Scientific Sessions on
November 12, 2001 and were published in a website edition
of The New England Journal of Medicine. We submitted a PMA
Supplement for the HeartMate for destination therapy for
patients suffering from late-stage CHF. These CHF patients are
not candidates for heart transplants due to their age or medical
condition. On November 29, 2001 we received notification
from the FDA that it expedited the review of our PMA Supplement.
On March 4, 2002, the FDA Circulatory System Devices
Advisory Panel recommended that the FDA approve our PMA
Supplement, with conditions, to provide long-term support for
end-stage heart failure patients who are not eligible for
transplantation. The FDA typically follows the Panels
recommendations, although it is not legally obligated to do so.
If approved by the FDA, the HeartMate will become the first
ventricular assist device approved for destination therapy for
patients suffering from late-stage CHF. We estimate the size of
this market opportunity at up to an additional 100,000 patients
annually in the United States.



| |                     
| | --------------------
| | Therapeutic Recovery

We believe that, for most patients, recovery of
their own heart is a better alternative than either heart
transplantation or permanent implantation of a blood pumping
device. Based on recently reported cases of recovery in heart
failure patients, we believe that our Thoratec VAD system is a
potential therapy that can reverse the complications of
late-stage heart failure in certain patients.

While this therapeutic recovery indication is not
yet approved for our devices, we are actively investigating the
worldwide experience with our VAD systems as a means of
therapeutic recovery and the requirements for pursuing
regulatory approval for this indication. Although it is not
certain how many patients with CHF could benefit from this
indication, based upon the percentage of patients with
late-stage CHF, we believe that the patient population could be
substantial. We submitted a PMA Supplement to the FDA in
December 2000 and hope to receive approval in the United States
in 2002. We are also formulating a regulatory and clinical
strategy for non-U.S. markets.



| |                                    
| | -----------------------------------
| | Recovery Following Cardiac
	Surgery

In addition to CHF, our devices are also used for
patients who suffer from acute cardiac failure and undergo
cardiac surgery. Following cardiac surgery, some patients have
difficulty being weaned off heart/ lung

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machines  a complication that arises
in approximately one to three percent of the more than 900,000
open-heart procedures performed each year. Many of these
patients ultimately die from heart failure when the heart,
weakened by disease and the additional trauma of surgery, fails
to maintain adequate blood circulation. We believe that only a
small portion of this market is currently being treated with
VADs and this patient population could benefit substantially
from further awareness and use of our VADs in this market.




| |              
| | -------------
| | Other Markets

In addition to the circulatory support market, we
sell other devices including those that address the vascular
access graft market. Our vascular grafts program has developed
the Aria graft for patients undergoing CABG surgery or who have
too few and/or poor quality vessels of their own to use for the
procedure. The Aria is currently in clinical trials. We have
also developed and are marketing the VectraVascular
Access Graft, or Vectra,for patients undergoing renal
hemodialysis.

We believe that the market opportunity for the
Aria could be up to 20% of those patients who undergo CABG
surgery but do not have healthy native vessels. Industry sources
estimate that this market could be approximately 180,000
patients each year. Our Vectraproduct targets the
estimated 225,000 prosthetic access vascular grafts implanted in
hemodialysis patients annually.

Finally, our diagnostic products for blood
coagulation testing and our single-use skin incision devices,
which we sell through ITC, address the market for those patients
who must monitor their blood chemistry. We estimate this market
is smaller than our other markets but that we hold a leading
position for these devices. We currently estimate that the
market for these products is over $250 million per year.

Our Products

We offer two complementary circulatory support
product lines:



| |   |                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the Thoratec Ventricular Assist Device system,
	which we call the Thoratec VAD system, an external device for
	short to mid-term cardiac support; and
|
| |  | the HeartMate Left Ventricular Assist system,
	which we call the HeartMate, an internal device for longer term
	cardiac support.                     

In addition to our cardiac assist products, we
offer vascular access grafts, used in hemodialysis for patients
with end stage renal disease. We are also developing a small
diameter access graft for use in CABG surgery. Additionally, we
sell whole-blood coagulation testing equipment used in bedside
anticoagulation management, coagulation screening and skin
incision devices for the drawing of blood from adult, children
and infant patients.



| |                             
| | ----------------------------
| | Circulatory Support Products

Ventricular assist devices perform some or most
of the pumping function of the heart in patients with severe
heart failure. A cannula connects the left ventricle of the
heart to a blood pump that is driven by a power source, which
can be either electric or pneumatic. Blood flows from the left
ventricle to the pump chamber, via the cannula. An electric or
air driven mechanism compresses the pump chamber and forces the
blood through another cannula into the aorta. From the aorta,
the blood then circulates throughout the body. Valves, which can
be mechanical or tissue, enable unidirectional flow.

Certain VADs are implanted internally, while
others are placed outside the body. Some external devices are
placed immediately adjacent to the body (paracorporeal), while
other external VADs are positioned at a distance from the body
(extracorporeal). Between 15% and 20% of assist patients require
biventricular support and therefore require a second pump for
the right ventricle. Currently the power source remains outside
the body for all FDA-approved VADs.

6



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| |                 
| | ----------------
| | The Thoratec VAD

The Thoratec VAD has been FDA-approved since 1995
and has treated 1,800 patients worldwide. The Thoratec VAD is a
paracorporeal device that remains outside of the body. The
product is less invasive than implantable VADs since only the
cannulae must be implanted. The paracorporeal nature of the
Thoratec VAD has several positive consequences including
relatively shorter and less invasive implantation times
(approximately two hours) and the ability to use the device in
smaller patients.

A pneumatic power source drives our VAD. It is
designed for intermediate duration use of a few weeks to several
months, though this device has supported numerous patients for
six to eighteen months. Offering left, right or biventricular
support, the Thoratec VAD is the only biventricular support
system approved for use as a bridge to transplant. This
characteristic is significant since 15% to 20% of patients
require right-sided ventricular assist. The Thoratec VAD is also
the only device approved for both bridge to transplant and
recovery following cardiac surgery. We submitted a PMA
Supplement in December 2000 for a therapeutic recovery
indication, which we expect to receive by the end of 2002. The
Thoratec VAD is made with our proprietary biomaterial, Thoralon,
which may reduce clotting.

Ambulation with most paracorporeal VADs is
possible, but very limited because of the large size of the
typical drive console. In order to improve patient mobility, we
developed the TLC-II, a small portable driver, which increases
portability and ambulation options. The portable driver was
recently approved in the United States for use in off-site
excursions and is in clinical trials for a home discharge
indication. The TLC-II has been approved for use in Europe since
1998.



| |              
| | -------------
| | The HeartMate

The HeartMate has been used to treat nearly 3,200
patients worldwide. There are currently two versions of the
HeartMate available on the market with different sources of
power. The pneumatic-powered version of the HeartMate, called
the HeartMate IP, was approved in the United States in 1994
and was the first FDA-approved cardiac assist device. The
electric HeartMate, called the HeartMate VE, received FDA
approval in September 1998. Currently, the electric version
accounts for over 90% of our total HeartMate sales and we
recently introduced a number of enhancements to the HeartMate,
which have been approved by the FDA. Compared with the
Thoratec VAD, the HeartMate is designed for longer duration
use of several months to up to two or three years. The HeartMate
offers only left ventricular support. While the device is
currently approved as a bridge to transplant indication and for
home discharge, the REMATCH trial evaluated HeartMate for
destination therapy for patients who are not eligible for a
heart transplant.

Patients with a HeartMate do not require
anti-coagulation, since the device utilizes proprietary textured
surfaces and tissue valves rather than mechanical valves. As a
result, we believe that this device has the lowest rate of
stroke for patients using ventricular support. The implantable
nature of this device enables patient ambulation and home
discharge.



| |                
| | ---------------
| | Implantable VAD

We are developing and expect to commercialize the
IVAD, which is an implantable version of the Thoratec VAD.
The IVAD maintains the same blood flow path, valves and blood
pump as the paracorporeal device and is better suited for
longer-term support compared to the Thoratec VAD. The outer
covering of the IVAD is made of a titanium alloy, which
facilitates implantation. The device is approximately half the
size of other implantable VADs and weighs less than one pound.
The device can be implanted in patients ranging in weight from
40 kg to over 100 kg. The small blood pump is
implanted in the body and is connected to a small, briefcase
size, battery-powered, external control unit. The device can
provide left, right, or biventricular support. The IVAD is being
designed as a bridge to transplant and possibly for therapeutic
recovery, but not as an alternative to transplant.

In February 2001, we received a conditional IDE
approval to commence an IVAD clinical trial. The study will
evaluate up to 30 patients in up to 10 centers, which are
in the process of obtaining approval. We plan to submit a PMA
Supplement in the first half of 2003, and expect approval in the
second half of 2003.

7



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| |                               
| | ------------------------------
| | HeartMate II and HeartMate III

HeartMate II, the next-generation HeartMate
device, is being designed for use in many types of patients and
indications, including for destination therapy.
HeartMate II, is a small implantable electrically powered
device that weighs only 12 ounces and is approximately
1.5 inches wide and 3 inches long. The small size of
the device is made possible by a continuous axial flow
mechanism, as compared with the pulsatile flow of other
currently marketed products. The device is also designed to be
quieter than currently marketed products. The pump speed can be
controlled manually or by a proprietary automatic mode, which
regulates pumping activity based on the demands of the body. We
believe this will be a competitive advantage since most
competitive axial pumps currently in development must be
manually adjusted. The anticipated longevity of the device is
expected to be five to seven years.

The first HeartMate II was implanted in
Israel in 2000 and the first European implant occurred in April
2001. We filed for a U.S. IDE in August 2001. Our goal is to
complete U.S. clinical trials in 2003, with HeartMate II
launches anticipated in Europe by year-end 2002 and in the
United States by the end of 2003.

In addition, we are developing our third
generation HeartMate, the HeartMate III. The
HeartMate III is a centrifugal flow pump that employs an
electrically powered magnetic rotor that eliminates wear from
touching parts. No bearings are present and the device is
completely encased in titanium. HeartMate III maintains
both continuous and pulsatile flow capabilities. The anticipated
longevity of the device is 10-20 years. To date,
preclinical studies have been performed, with the first
six-month preclinical studies already completed.



| |                        
| | -----------------------
| | Vascular Graft Products

We are developing small diameter vascular graft
products intended initially to address the vascular access and
CABG markets. Both products utilize our proprietary Thoralon
biomaterial, and are protected by several U.S. and foreign
patents covering the material and the structure of the graft
products, as well as several foreign patents covering aspects of
the manufacturing processes used to make the products. We
believe that our vascular grafts are highly compliant, have
excellent handling and suturing properties and have the
feel of a natural blood vessel. Our manufacturing
process creates a structure in which the three different layers
in the graft wall have different properties, which make the
graft closely resemble natural blood vessels. The inner textured
layer is designed for contact with blood and provides improved
resistance to blood clots. The solid middle layer gives the
graft its strength and self-sealing properties. The outer
textured layer is designed to promote tissue ingrowth to enhance
graft stability.



| |                                  
| | ---------------------------------
| | Aria Coronary Artery Bypass Graft

We have developed a small diameter graft for use
in coronary artery bypass surgery patients who have too few or
no suitable vessels of their own. The most unique aspect of the
Aria is its potential for improved long-term patency (up to
eight years) in small diameter grafts. We believe that to date
no other suitable small diameter graft has been developed which
will remain patent over long periods of time when used in this
critical application.

We received FDA approval for a Phase I IDE
study of the Aria graft in May 2000. This study was designed to
evaluate the Aria graft in patients with inadequate autologous
vessels to complete revascularization. The Phase I results,
based on 19 patients enrolled across the six centers, were
submitted to the FDA in September 2001 and we requested approval
to begin the pivotal Phase II. In November 2001, the FDA
granted conditional approval for conducting the Phase II
clinical trial at 20 centers for up to 162 patients.



| |                             
| | ----------------------------
| | Vectra Vascular Access Graft

The Vectravascular access graft was
approved for sale in the United States in December 2000 and in
Europe in January 1998. It is designed for use as a shunt
between an artery and a vein, primarily to provide access to the
bloodstream for renal hemodialysis patients requiring frequent
needle punctures during treatment. Other currently available
vascular access grafts are commonly made out of ePTFE, which can
lose

8



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##### Table of Contents



integrity after repeated punctures and require a
three to six week healing period between implantation and the
initiation of dialysis treatment. We believe that the Vectramay provide significant advantages over existing synthetic
vascular access grafts that may encourage its use by surgeons
who are currently using natural vessels for vascular access. We
currently sell Vectrathrough the Impra division of C.R.
Bard Corporation (Impra) in the United States, Europe and
selected countries in Scandinavia, the Middle East and Northern
Africa and through Goodman Co. Ltd. in Japan.




| |                                                     
| | ----------------------------------------------------
| | Blood Coagulation Testing and Skin Incision
	Devices

Through ITC, we manufacture and supply whole
blood coagulation testing equipment and related disposables, as
well as premium-quality, single-use skin incision devices.

Our whole-blood coagulation testing equipment
product lines offer systems for bedside anticoagulation
management, coagulation screening and transfusion management.
Each analyzes small blood samples, then processes and quickly
displays comprehensive patient homeostasis information. Blood
management of this type is essential for cardiopulmonary bypass
surgery and angioplasty. HEMOCHRON models are designed for use
in a clinical setting at the patients bedside. They are
lightweight, battery-operated, portable and some provide
data-management features.

The Protime Microcoagulation System is designed
to allow testing for patients who take the blood-thinning drug
Warfarin (or Coumadin, the trade name for the generic drug,
Warfarin). The system consists of a hand-held instrument, a
five-channel cuvette and a finger incision device. These tests
are performed in a doctors office, clinic or by the
patients at home.

We also manufacture a family of single-use skin
incision devices for drawing blood from adults, children and
infants. Each employs a patented skin incision technology to
provide a standardized surgical incision.

Sales and Marketing

We operate in the following business segments:
Cardiovascular Products, formerly called VAD/graft, and Other
Medical Equipment. Cardiovascular Products include our
circulatory support products and vascular graft products. Other
Medical Equipment includes our blood coagulation testing and
skin incision devices.



| |                             
| | ----------------------------
| | Circulatory Support Products

The potential customers for our circulatory
support products are hospitals that perform open heart surgery
procedures and heart transplants. We estimate that 130 of the
approximately 900 hospitals in the United States that
perform open-heart surgery also perform heart transplants. We
actively are marketing to these 130 heart transplant
hospitals and large cardiac surgery centers in addition to
110 heart transplant hospitals in Europe.

We have recruited and trained a direct sales
force that, as of December 29, 2001, was comprised of
18 experienced cardiovascular sales specialists to sell our
circulatory support systems in the United States, Canada,
France, Germany, Spain, United Kingdom, Austria, Switzerland,
Netherlands, Portugal and South Africa.

The sales effort is complemented by
10 direct clinical specialists that conduct clinical
educational seminars, assist with a new open-heart centers
first VAD implant and resolve clinical questions or issues. We
also partner with universities, experienced clinicians and
opinion leaders to assist with expanding clinical educational
needs. The sales team focuses on cardiac surgeons that perform
heart transplantation and transplant surgeons, perfusionists and
the transplant nursing staff. In addition to our direct selling
effort, we have established a network of international
distributors who cover those markets that represent the majority
of ventricular assist device potential. We employ sales and
marketing tactics commonly found within the cardiovascular
device market such as direct mail, clinical education seminars,
symposia, equipment purchase and lease programs and journal
advertisement. We have also assembled a Medical Advisory Board
consisting of opinion leaders who provide clinical input and
direction on product development, marketing and market issues.

9



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Hospitals or other medical institutions that
acquire a VAD system generally purchase VAD pumps, related
disposables and training and purchase or rent two of the
associated pump drivers (to ensure that a backup driver is
available). The time from the initial contact with the cardiac
surgeon until purchase is generally between nine and eighteen
months, due to the expense of the product and common hospital
capital equipment acquisition procedures. Upon receipt of a
purchase order, we will usually ship the products within thirty
days.

The introduction of a VAD system in a new
hospital or other medical institution requires that the surgical
and clinical support personnel possess certain expertise to use
our products. For our customers that do not already have this
expertise, we provide initial training for the surgical and
clinical support teams generally after delivery of one of our
VAD products. As many of our customers already possess
sufficient experience and expertise to use our products,
training is provided as a best practice to optimize the use and
success of our products. In addition, a variety of training
materials accompany the initial delivery of our VAD products
including instructions for use, patient management manuals and
assorted videos. As a follow-up to the initial training, we
provide clinical support at the first implant whenever possible.
We also provide 24-hour access to clinically trained personnel.
Our sale force also assists customers with obtaining
reimbursement from third-party payors.



| |                        
| | -----------------------
| | Vascular Graft Products

We market the Vectrathrough Impra in the
United States, Europe and selected countries in Scandinavia, the
Middle East and Northern Africa and through Goodman Co. Ltd. in
Japan. We intend to market the Aria CABG device through our
direct sales force in the United States and Europe and
potentially through distributors in other international markets.

The Aria is being developed as a preferable
clinical option for patients who lack suitable native vessels.
We believe that more clinician education will be required for
the Aria graft in terms of patient indications, product use, and
product capabilities. We may accomplish this education by
sponsoring educational programs, video educational tools and
scientific lecture programs. We also anticipate that we may need
a larger domestic sales force structure to effectively market
the Aria graft.



| |                                                     
| | ----------------------------------------------------
| | Blood Coagulation Testing and Skin Incision
	Devices

ITC maintains a direct sales staff of 31 in the
United States who sell to hospitals as well as to third party
dealers and distributors including Allegiance Healthcare.
Outside of the United States, ITC has two salespeople selling
principally to third-party dealers.

Manufacturing

We manufacture our products at the following
facilities:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Thoratec VAD systems are manufactured at our
	facility in Pleasanton, California. This facility has been
	inspected, approved and licensed by the FDA and the State of
	California Department of Health Services, Food and Drug Section
	for the manufacture of medical devices and has received the
	International Standards Organization (ISO) 9001
	certification. Our manufacturing processes for the Thoratec VAD
	system consist of the assembly of standard and custom component
	parts, including blood-contacting components fabricated from our
	proprietary biomaterials and the testing of completed products.
	We rely on single sources of supply for several components of
	the Thoratec VAD system. We are aware of alternative suppliers
	for all single-sourced items other than the Thoratec VAD
	mechanical valves, which have been supplied by Arrow
	International Inc.
|
| |  | HeartMate devices are manufactured in Woburn,
	Massachusetts. We are in the process of moving portions of this
	facility (including all manufacturing) to Pleasanton, California
	and expect the move to be completed by the end of 2002. We will
	continue operating marketing, research and development and
	administrative functions at the Woburn facility.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | Blood coagulation testing and skin incision
	devices are manufactured in Edison, New Jersey.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

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Patents and Proprietary Rights

We seek to patent certain aspects of our
technology. We hold, or have exclusive rights to, several
U.S. and foreign patents. Except for the patents mentioned
below, the Thoratec VAD system is not protected by any patents
other than one patent pertaining to the TLC-II. We do not
believe that this lack of patent protection will have a material
adverse effect on our ability to sell the Thoratec VAD system
because of the lengthy regulatory period required to obtain
approval of a ventricular assist device. We are not aware of any
ventricular assist devices that are based on our product design
currently approved by the FDA or undergoing clinical trials.
Several patents cover aspects of our HeartMate products.

Our patents relating to blood coagulation and
skin incision devices are assigned to ITC. We own or hold rights
in the remainder of the U.S. patents by virtue of the Merger
between Thoratec and Thermo Cardiosystems. However, documents
transferring ownership of some of these patents have not yet
been submitted to the United States Patents and Trademarks
Office, or PTO, and, while documents have been submitted to the
PTO for others, those documents have not yet been recorded by
the PTO. Until documents transferring rights to us as a result
of the Merger are recorded, our rights in the respective patents
could be subject to rights of others who purchased those rights
from Thoratec or Thermo Cardiosystems without knowledge of the
Merger.

Several patents cover aspects of our proprietary
biomaterials technology, some of which were sold to
TH Goldschmidt AG, a German chemical manufacturer, in 1989,
but we have retained worldwide, royalty-free, exclusive rights
to these patents for most medical applications. The patent
license from Goldschmidt will remain in effect for the duration
of the patents sold to Goldschmidt and includes medical uses
that we expect are necessary for our business as now conducted
or as proposed to be conducted in the future. For example, the
medical applications include blood pumps, artificial hearts and
cardiac assist devices of all kinds, cardiovascular products,
including heart valves and prosthetic blood vessels and cannulae
and blood tubing of all kinds. Aspects of our vascular graft
products are covered by patents covering materials, graft
structure, and, in some foreign countries, manufacturing
processes used to make the graft products. Aspects of our blood
coagulation and skin incision device products are covered by
patents directed to blood coagulation testing equipment and
methods, and to skin incision devices and methods of
manufacturing such devices. The duration of some of our patents
on our HeartMate products range from 14 to 15 years, on our
biomaterials, 2 1/2 years, on our grafts, from
3 months to 3 1/2 years and on our blood
coagulation and skin incision device products, from 3 to
15 years. During the term of our patents, we have the right
to prevent third parties from manufacturing, marketing or
distributing products that infringe upon our patents.

We hold, or have exclusive rights to, several
international patents, including several biomaterial patents
licensed from Goldschmidt referred to above. In August 1998, we
obtained a license to incorporate technology developed by Sulzer
Electronics Ltd. into the HeartMate III. HeartMate III is a
miniature centrifugal pump featuring a magnetically controlled
system that has been developed by Levitronix GmbH. The license
from Sulzer gives us the exclusive right to use in our HeartMate
products technology protected by several U.S. and foreign
patents covering implantable magnetically controlled pumps for
the duration of those patents, subject to our payment of
royalties. In December 2000, we were informed by Sulzer
Electronics that Sulzer had sold all of their business in the
bearingless motor and magnetic bearing fields to Levitronix and
had assigned the agreements between Sulzer and us to Levitronix.
The license remains in full force and effect.

The validity of any of our patents may be
challenged by others, and we could encounter legal and financial
difficulties in enforcing our patent rights against alleged
infringements. In addition, others could develop technologies
that avoid infringement of our patents or obtain patents which
would render our patents obsolete. Although we do not believe
patents are the sole determinant in the commercial success of
our products, the loss of a significant percentage of our
patents or the patents relating to our products could seriously
harm our business.

We have developed technical knowledge, which
although non-patentable, we consider to be significant in
enabling us to compete. However, the proprietary nature of such
knowledge may be difficult to protect. It is our policy to enter
into confidentiality agreements with each of our employees
prohibiting such employee from disclosing any confidential
information or trade secrets. In addition, these agreements
provide that any

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inventions or discoveries relating to our
business by these individuals will be assigned to us and become
our sole property. However, we cannot guarantee that every
person who gets access to our confidential information or trade
secrets will have signed such an agreement, or that every person
who has signed such an agreement will abide by it. If they do
not, or if our confidential information or trade secrets are
otherwise disclosed, there is no guarantee that any legal
remedies will prevent the harmful disclosure or use of our
confidential information or trade secrets.


Claims by competitors and other third parties
that our products allegedly infringe the patent rights of others
could seriously harm our business. The medical device industry
is characterized by frequent and substantial intellectual
property litigation. The cardiovascular device market is
characterized by extensive patent and other intellectual
property claims. Intellectual property litigation is complex and
expensive and the outcome of this litigation is difficult to
predict. Any future litigation, regardless of outcome, could
result in substantial expense and significant diversion of the
efforts of our technical and management personnel. An adverse
determination in any such proceeding could subject us to
significant liabilities or require us to seek licenses from
third parties or pay royalties that may be substantial.
Furthermore, we cannot assure you that necessary licenses would
be available on satisfactory terms, or at all. Accordingly, an
adverse determination in a judicial or administrative proceeding
or failure to obtain necessary licenses could prevent us from
manufacturing or selling certain of our products, any of which
could seriously harm our business.

We have received correspondence from a third
party alleging that the textured surface of our HeartMate
housing infringes certain patent rights of such third party. In
general, an owner of intellectual property can prevent others
from using such property without a license and is entitled to
damages for unauthorized usage. We have investigated the basis
of the allegation and, based upon an evaluation of all of the
facts and circumstances, we believe that we have meritorious
defenses. However, we cannot be sure that our defenses would
prevail, and given the inherent uncertainties in dispute
resolution, if we were sued and the outcome was unfavorable, our
results of operations or financial condition could be seriously
harmed.

Competition

Principal competitors of our VAD systems include:



| |   |                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | World Heart Corporation, which manufactures and
	markets an implantable left ventricular assist device approved
	only for bridge to heart transplant in the United States; and                                             
|
| |  | ABIOMED, Inc., which manufactures and markets a
	biventricular assist device approved only for temporary
	circulatory support of patients in post-heart surgery shock and
	other recovery indications in the United States.

We believe that the principal competitive factors
in the circulatory support market are patient outcomes, product
performance, size and portability, quality, cost-effectiveness
and customer service. We believe that our principal competitive
advantages are:



| |   |                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our ability to provide left, right or
	biventricular support;                                                                                              
|
| |  | our ability to provide short-term or long-term
	circulatory support;                                                                                       
|
| |  | the lowest known rate of stroke for patients
	using ventricular support;                                                                                   
|
| |  | our ability to provide implantable or
	paracorporeal VAD placement;                                                                                        
|
| |  | our ability to provide support in the hospital or
	in the home;                                                                                            
|
| |  | our ability to provide support to a greater range
	of patients as a result of the smaller size and placement of the
	paracorporeal system outside the body;
|
| |  | the greater range of cannulation options
	available;                                                                                                       
|
| |  | the quality of our biomaterials;                                                                                                                           
|
| |  | the availability and quality of service and field
	support; and                                                                                            

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| |   |                                                          
| | - | ---------------------------------------------------------
| |  | our ability to offer numerous products from one
	company.

Although we believe that these attributes of our
VAD systems offer certain advantages over existing ventricular
assist devices, we expect our current competitors to defend
their market positions vigorously.

Our principal competitors in the vascular access
graft market are W.L. Gore, Inc., C.R. Bard and Boston
Scientific Corporation, who manufacture and market ePTFE grafts
worldwide. Smaller competitors include CardioTech International,
Inc., which manufactures and markets a polyurethane graft that
is available for sale outside of the United States. Finally,
Possis Medical, Inc. manufactures a self-sealing silicone rubber
graft marketed with limited indications in the United States
through Horizon Medical Products, Inc.

ITCs principal competitor for the HEMOCHRON
coagulation monitoring instruments, used in the operating room
and in cardiac catheterization, is the HemoTec division of
Medtronic, Inc. Roche Holding AG competes with the ProTime
product with a blood coagulation monitor that is marketed to
clinics and also is used for patient self-testing. There are
also several new competitors that have recently entered the
blood coagulation monitoring market. ITCs products compete
primarily on the basis of reputation, utility, and price.

ITCs skin incision devices compete with
products offered by a number of companies, including Organon
Teknika B.V.; Becton, Dickinson and Company; and Owen-Mumford
Ltd. The skin incision devices compete primarily on the basis of
safety, quality and reputation.

Government Regulations

Regulation by governmental authorities in the
United States and foreign countries is a significant factor in
the manufacture and marketing of our current and future products
and in our ongoing product research and development activities.
All of our proposed products will require regulatory approval
prior to commercialization. In particular, medical devices are
subject to rigorous preclinical testing as a condition of
approval by the FDA and by similar authorities in foreign
countries.



| |                 
| | ----------------
| | U.S. Regulations

In the United States, the FDA regulates the
design, manufacture, distribution and promotion of medical
devices pursuant to the Federal Food, Drug, and Cosmetic Act and
the regulations promulgated thereunder, or the FDA Act and
Regulations. Our VAD systems, blood coagulation testing devices,
skin incision devices, and Aria and Vectragraft products
are regulated as medical devices. To obtain FDA approval to
market ventricular assist devices similar to those under
development, the FDA requires proof of safety and efficacy in
human clinical trials performed under an IDE. An IDE application
must contain preclinical test data supporting the safety of the
product for human investigational use, information on
manufacturing processes and procedures, proposed clinical
protocols and other information. If the IDE application is
accepted, human clinical trials may begin. The trials must be
conducted in compliance with FDA regulations and with the
approval of one or more institutional review boards. The results
obtained from these trials, if satisfactory, are accumulated and
submitted to the FDA in support of either a PMA application or a
510(k) premarket notification. Premarket approval from the FDA
is required before commercial distribution of devices similar to
those under development by us is permitted in the United States.

The PMA Supplement must be supported by extensive
data, including preclinical and human clinical data, to prove
the safety and efficacy of the device with respect to the
modifications disclosed in the supplement. By regulation, the
FDA has 180 days to review a PMA application and during
that time an advisory committee may evaluate the application and
provide recommendations to the FDA. While the FDA has approved
PMA applications within the allotted time period, reviews more
often occur over a significantly protracted period, usually 18
to 36 months, and a number of devices have never been
cleared for marketing. This is a lengthy and expensive process
and there can be no assurance that such FDA approval will be
obtained.

Under the FDAs requirements, if a
manufacturer can establish that a newly developed device is
substantially equivalent to a legally marketed
predicate device, the manufacturer may seek marketing clearance
from the FDA to market the device by filing a 510(k) premarket
notification with the FDA. This is

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the process that is used to gain FDA market
clearance for most of the ITC products including HEMOCHRON and
ProTime. The 510(k) premarket notification must be supported by
data establishing the claim of substantial equivalence to the
satisfaction of the FDA. The process of obtaining a 510(k)
clearance typically can take several months to a year or longer.
If substantial equivalence cannot be established, or if the FDA
determines that the device requires a more rigorous review, the
FDA will require that the manufacturer submit a PMA application
that must be approved by the FDA prior to marketing the device
in the United States.


Both a 510(k) and a PMA, if approved, may include
significant limitations on the indicated uses for which a
product may be marketed. FDA enforcement policy prohibits the
promotion of approved medical devices for unapproved uses. In
addition, product approvals can be withdrawn for failure to
comply with regulatory requirements or the occurrence of
unforeseen problems following initial marketing.

The approval process for each of our products is
expensive and time consuming and we cannot assure you that any
regulatory agency will grant its approval. Our inability to
obtain, or delays in obtaining, such approval would adversely
affect our ability to commence marketing our products. We cannot
assure you that we will have sufficient resources to complete
the required testing and regulatory review processes.
Furthermore, we are unable to predict the extent of adverse
governmental regulation which might arise from future U.S. or
foreign legislative or administrative action.

In addition, any products distributed pursuant to
the above authorizations are subject to pervasive and continuing
regulation by the FDA. Products must be manufactured in
registered establishments and must be manufactured in accordance
with cGMP regulations and adverse events must be reported to the
FDA. Labeling and promotional activities are subject to scrutiny
by the FDA and, in certain instances, by the Federal Trade
Commission. The failure to comply with the FDAs
regulations can result in enforcement action, including seizure,
injunction, prosecution, civil penalties, recall and suspension
of FDA approval. The export of devices is also subject to
regulation in certain instances.

We are also subject to regulation by the
California Department of Health Services, Food and Drug Section
and the New Jersey Department of Health, which may inspect us
and enforce regulations. Failure to comply with applicable state
regulations may result in seizures, injunctions or other types
of enforcement actions.



| |                          
| | -------------------------
| | International Regulations

We are also subject to regulation in each of the
foreign countries in which we sell products with regard to
product standards, packaging requirements, labeling
requirements, import restrictions, tariff regulations, duties
and tax requirements. Many of the regulations applicable to our
products in such countries are similar to those of the FDA. The
national health or social security organizations of certain
countries require our products to be qualified before they can
be marketed in those countries.

In order to be positioned for access to European
and other international markets, we sought and obtained
certification under the ISO 9000 Series of Standards.
ISO 9000 is a set of integrated requirements, which when
implemented, form the foundation and framework for an effective
quality management system. These standards were developed and
published by the ISO, a worldwide federation of national bodies,
founded in Geneva, Switzerland in 1947. ISO has over
90 member countries. ISO certification is widely regarded
as essential to enter Western European markets. We obtained
certification and were registered as an ISO 9002 compliant
company in January 1995. Commencing in mid-1998, all companies
are required to obtain CE Marks for medical devices sold or
distributed in the European Union. The CE Mark is an
international symbol of quality. With it, medical devices can be
distributed within the European Union, which is comprised of 15
European countries representing a population of over
379 million people. A prerequisite for obtaining authority
to CE Mark products is to achieve full quality system
certification in accordance with ISO 9001 and
EN 46001. These are quality standards that cover design,
production, installation and servicing of medical devices. We
have our ISO 9001 and EN 46001 certification and
authority to CE Mark all VAD systems, including the
HeartMate, blood coagulation testing and skin incision devices
and the Vectragraft. We are also

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certified to be in compliance with the
requirements of the European Medical Device Directive, another
prerequisite for applying the CE Mark.




| |                  
| | -----------------
| | Other Regulations

We are also subject to various federal, state and
local laws and regulations relating to such matters as safe
working conditions, laboratory and manufacturing practices and
the use, handling and disposal of hazardous or potentially
hazardous substances used in connection with our research and
development work. Specifically, the manufacture of our
biomaterials is subject to compliance with federal environmental
regulations and by various state and local agencies. Although we
believe we are in compliance with these laws and regulations in
all material respects, we cannot assure you that we will not be
required to incur significant costs to comply with environmental
laws or regulations in the future.

Third Party Reimbursement and Cost
Containment

Our products are purchased primarily by hospitals
and other users, which then bill various third party payors for
the services provided to the patients. These payors, which
include Medicare, Medicaid, private health insurance companies
and managed care organizations, reimburse part or all of the
costs and fees associated with these devices and the procedures
performed with these devices.

Third party payors are increasingly challenging
the prices charged for medical products and services and may
deny reimbursement if they determine that a device was not used
in accordance with cost-effective treatment methods as
determined by the payor, was experimental or was used for an
unapproved application. To date, some private insurers and
Medicare and Medicaid have determined to reimburse the costs of
our VAD systems. Changes in reimbursement, policies and
practices of third party payors could seriously harm sales of
our products.

Employees

As of December 29, 2001, we had 672
full-time employees, 302 of whom worked in manufacturing,
96 in engineering, 90 in quality control and
regulatory affairs, 106 in marketing and sales support,
36 in administration and finance and 42 in other
support functions, including human resources, management
information systems, purchasing and facilities. Out of our total
full-time employees, 657 are employed in the United States
and 15 are employed in the United Kingdom and other
European countries. None of our employees are covered by a
collective bargaining agreement. We consider relations with our
employees to be good.

Research and Development

Thoratecs research and development expenses
in 2001, 2000 and 1999 were $22.1 million,
$16.2 million and $16.0 million, respectively.

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RISK FACTORS

We make statements in this Annual Report on
Form 10-K and other statements from time to time that
relate to future plans, events or performance that are
forward-looking statements which involve risks and
uncertainties. Actual results, events or performance may differ
materially from those anticipated in any forward-looking
statements as a result of a variety of factors, including those
set forth below and elsewhere in this Annual Report on
Form 10-K. You should consider each of the risks and
uncertainties described in this section and all of the other
information in this Annual Report on Form 10-K in
evaluating our company and our business before deciding to
invest in our common stock.

We have a history of net losses, and we may
not achieve or maintain profitability.

We were founded in 1976 and have a history of
incurring losses from operations. As of December 29, 2001,
our accumulated deficit was approximately $31.2 million. We
anticipate that our expenses will increase as a result of
increased preclinical and clinical testing, research and
development and selling, general and administrative expenses. We
could also incur significant additional costs in connection with
the Merger and the development and marketing of new products and
indicated uses for our existing products. Such costs could
prevent us from achieving or maintaining profitability in future
periods.

We could face significant challenges in
integrating TCA and, as a result, may not realize the expected
benefits of the Merger.

Thoratec and TCA have different technologies,
products and business operations that have operated
independently. The ongoing combination of these businesses has
been complex and costly. If we fail to integrate the employees
and products of both companies, or if we fail to complete the
relocation of our Woburn manufacturing operations to Pleasanton,
the operating results of the combined company could be adversely
affected and we may not achieve the benefits or operating
efficiencies that we hoped to obtain from the Merger.

Physicians may not accept or continue to
accept our products and products under development.

The success of our current and future products
will require acceptance or continued acceptance by
cardiovascular and vascular surgeons and other medical
professionals. Such acceptance will depend on clinical results
and the conclusion by these professionals that our products are
safe, cost-effective and acceptable methods of treatment. Even
if the safety and efficacy of our future products are
established, physicians may elect not to use them for a number
of reasons. These reasons could include the high cost of our VAD
systems or unfavorable reimbursement from health care payors.
Also, economic, psychological, ethical and other concerns may
limit general acceptance of our ventricular assist, graft and
other products.

We have experienced rapid growth and changes
in our business, and our failure to manage this and any future
growth could harm our business.

As a result of the Merger in February 2001, the
number of our employees has increased significantly, from 183 on
December 30, 2000 to 672 on December 29, 2001. We
expect to continue to grow and we may suffer if we do not
integrate and train our new employees quickly and effectively.
Our revenues may not continue to grow at a rate sufficient to
support the costs associated with an increasing number of
employees. Any future periods of rapid growth may place
significant strains on our managerial, financial and other
resources. The rate of any future expansion, in combination with
our complex technologies and products, may demand an unusually
high level of managerial effectiveness in anticipating,
planning, coordinating and meeting our operational needs as well
as the needs of our customers.

If we fail to successfully introduce new
products, our future growth may suffer.

As part of our growth strategy, we intend to
develop and introduce a number of new products and product
improvements. We also intend to develop new indications for our
existing products. If we do not introduce

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these new products, product improvements and new
indications on a timely basis, or if they are not well-accepted
by the market, our future growth may suffer.


Amortization of our intangible assets, which
represents a significant portion of our total assets, will
adversely impact our net income and we may never realize the
full value of our intangible assets.

As of December 29, 2001, we had
$293.8 million of net intangible assets, representing 55%
of our total assets and 79% of our shareholders equity.
These intangible assets consist primarily of goodwill and other
intangible assets arising from our Merger and our trademarks and
patented technology. Amortization expense relating to these
intangible assets for 2001 was $15.7 million. Of this
amount, $4.4 million represented amortization of goodwill,
which is no longer amortized after we adopted Statement of
Financial Accounting Standards No. 142 at the beginning of
2002 (see Recent Accounting Pronouncements in Item
7. Managements Discussion and Analysis of Financial
Condition and Results of Operations). Ongoing amortization
of purchased intangibles will reduce our future earnings or
increase our future losses.

We may not receive the recorded value for our
intangible assets if we sell or liquidate our business or
assets. The material concentration of intangible assets
increases the risk of a large charge to earnings in the event
that the recoverability of these intangible assets is impaired,
and in the event of such a charge to earnings, the market price
of our common stock could be adversely affected.

We rely on specialized suppliers and
alternative suppliers may not be available.

We depend on a number of custom-designed
components and materials supplied by other companies including,
in some cases, single source suppliers for components and
materials used in our VAD systems. We do not have long-term
written agreements with most of our vendors and receive
components on a purchase order basis. For example, Arrow
International Inc., with whom we have no long-term written
contract, is the only supplier of the mechanical valves for the
Thoratec VADs and an alternative supplier may not be available.
Sales of our VAD system accounted for approximately 29% of our
revenues for 2001. If we need alternative sources for key raw
materials or component parts for any reason, such alternative
sources may not be available and our inventory may not be
sufficient to fill orders before we find alternative suppliers
or begin manufacturing such components or materials ourselves.
Cessation or interruption of sales of circulatory support
products would seriously harm our business, financial condition
and results of operations.

Alternative suppliers, if available, may not
agree to supply us. In addition, we may need to obtain FDA
approval before using new suppliers or manufacturing our own
components or materials. Existing suppliers could also be
subject to an FDA enforcement action, which could also disrupt
our supplies. If alternative suppliers are not available, we may
not have the expertise or resources necessary to produce such
materials or component parts internally. Any interruption in
supply of materials or component parts could seriously harm our
ability to manufacture products until we locate a new supply
source.

If we fail to compete successfully against our
existing or potential competitors, our revenues or operating
results may be harmed.

Competition from medical device companies and
medical device subsidiaries of health care and pharmaceutical
companies is intense and is expected to increase. Competitors
for the VAD system include, for example, World Heart Corporation
and ABIOMED, Inc. Principal competitors in the vascular graft
market include W.L. Gore, Inc., C.R. Bard and Boston Scientific
Corporation. The principal competitors in the coagulation
monitoring equipment market are the Hemotec division of
Medtronic, Inc. and Roche Holding AG. The primary competitors in
the skin incision device market are Organon Teknika B.V.;
Becton, Dickson and Company; and Owen-Mumford Ltd.

Many of our competitors have substantially
greater financial, technical, distribution, marketing and
manufacturing resources than we do. Accordingly, our competitors
may be able to develop, manufacture and

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market products more efficiently and at a lower
cost than we can. We expect that the key competitive factors
will include the relative speeds with which we can:




| |   |                                                         
| | - | --------------------------------------------------------
| |  | develop products;                                       
|
| |  | complete clinical testing;                              
|
| |  | receive regulatory approvals; and                       
|
| |  | manufacture and sell commercial quantities of
	products.

Additionally, our competitors may succeed in
developing and marketing technologies and products that are more
effective than ours. Any such products may render our technology
and products obsolete or noncompetitive. In addition, new
surgical procedures and medications could be developed that
replace or reduce the importance of current procedures that use
our products.

If we fail to obtain approval from the FDA and
from foreign regulatory authorities, we cannot market and sell
our products under development in the United States and in other
countries.

Before we can market new products in the United
States, we must obtain clearance from the FDA. This process is
lengthy and uncertain. In the United States, one must obtain
clearance from the FDA of a 510(k) premarket notification or
approval of a more extensive submission known as a
PMA application. If the FDA concludes that any of our
products does not meet the requirements to obtain clearance
under Section 510(k) of the Federal Food, Drug, and
Cosmetic Act, then we would be required to file a PMA
application. The process for a PMA application is lengthy,
expensive and typically requires extensive preclinical and
clinical trial data. Preclinical data may need to be obtained in
accordance with FDA good laboratory practices.

We may not obtain clearance of a 510(k)
notification or approval of a PMA application with respect to
any of our products on a timely basis, if at all. If we fail to
obtain timely clearance or approval for our products, we will
not be able to market and sell our products, harming our ability
to generate revenue. The FDA may also limit the claims that we
can make about our products. We may also be required to obtain
clearance of a 510(k) notification or PMA Supplement from the
FDA before we can market products that have been cleared that we
have now modified or for which we wish to use for new
indications.

The FDA also requires us to adhere to cGMP
regulations, which include production design controls, testing,
quality control, storage and documentation procedures. The FDA
may at any time inspect our facilities to determine whether we
have adequate compliance. Compliance with cGMP regulations for
medical devices is difficult and costly. In addition, we may not
be found to be compliant as a result of future changes in, or
interpretations of, regulations by the FDA or other regulatory
agencies. If we do not achieve compliance, the FDA may withdraw
marketing clearance, require product recall or take other
enforcement action, which in each case would harm our business.
Any change or modification in a device is required to be made in
compliance with cGMP regulations, which may cause interruptions
or delays in the marketing and sale of our products. The FDA
also requires device manufacturers to submit reports regarding
deaths, serious injuries and certain malfunctions.

Sales of our products outside the United States
are subject to foreign regulatory requirements that vary from
country to country. The time required to obtain approvals from
foreign countries may be longer or shorter than that required
for FDA approval, and requirements for foreign licensing may
differ from FDA requirements.

The federal, state and foreign laws and
regulations regarding the manufacture and sale of our products
are subject to future changes, as are administrative
interpretations and policies of regulatory agencies. If we fail
to comply with applicable federal, state or foreign laws or
regulations, we could be subject to enforcement actions.
Enforcement actions could include product seizures, recalls,
withdrawal of clearances or approvals, and civil and criminal
penalties, which in each case would harm our business.

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We may encounter problems manufacturing our
products.

We may encounter difficulties manufacturing our
products. We do not have experience in manufacturing our
products in the commercial quantities that might be required if
we receive FDA approval of several or all of the products and
indications currently under development. If we have difficulties
manufacturing our products, our business will be harmed.

Since we depend upon distributors, if we lose
a distributor or a distributor fails to perform, our operations
will be harmed.

With the exception of Canada and most countries
in Europe, we sell our VAD and HeartMate systems in foreign
markets through distributors. In addition, we sell our vascular
access graft products through the IMPRA division of C.R. Bard
Corporation, which we refer to as Impra, in the United States,
Europe and selected countries in Scandinavia, the Middle East
and Northern Africa and through Goodman Co. Ltd. in Japan. ITC
had sales through a distributor, Allegiance Healthcare, of
approximately $13.5 million for 2001. Our agreement with
Allegiance Healthcare expires in June 2002, unless terminated
earlier by either party if there is a material breach of the
agreement which remains uncured.

To the extent we rely on distributors, our
success will depend upon the efforts of others, over which we
may have little control. If we lose a distributor or a
distributor fails to perform, our revenues will be harmed.

Since we depend on third party reimbursement
to our customers, if third party payors fail to provide
appropriate levels of reimbursement for our products, our
operations will be harmed.

Significant uncertainty exists as to the
reimbursement status of newly-approved health care products such
as ventricular assist devices and vascular grafts. Government
and other third party payors are increasingly attempting to
contain health care costs. Payors are attempting to contain
costs by, for example, limiting coverage and the level of
reimbursement of new therapeutic products. Payors are also
attempting to contain costs by refusing, in some cases, to
provide any coverage of uses of approved products for disease
indications other than those for which the FDA has granted
marketing approval.

To date, a majority of private insurers that we
have dealt with, and Medicare and Medicaid, have determined to
reimburse some portion of the costs of our ventricular assist
devices and our diagnostic and vascular graft products. We
cannot, however, estimate what portion of such costs have been
reimbursed and our products may not continue to be approved for
reimbursement. In addition, changes in the health care system
may affect the reimbursability of future products. If we fail to
obtain such reimbursement or if the reimbursement levels are
partially or completely reduced, our revenues would be reduced.

Our inability to protect our proprietary
technologies or an infringement of others patents could
harm our competitive position.

We rely on patents, trade secrets, copyrights,
know-how, trademarks, license agreements and contractual
provisions to establish our intellectual property rights and
protect our products. These legal means, however, afford only
limited protection and may not adequately protect our rights. In
addition, we cannot assure you that any of our pending patent
applications will issue. The PTO may deny or significantly
narrow claims made under patent applications and the issued
patents, if any, may not provide us with commercial protection.
We could incur substantial costs in proceedings before the PTO
or in any future litigation to enforce our patents in court.
These proceedings could result in adverse decisions as to the
validity and/or enforceability of our patents. In addition, the
laws of some of the countries in which our products are or may
be sold may not protect our products and intellectual property
to the same extent as U.S. laws, if at all. We may be unable to
protect our rights in trade secrets and unpatented proprietary
technology in these countries.

Aside from the biomaterials patents, which are
utilized in the Thoratec VAD blood pump and cannulae, and one
patent covering aspects of our TLC-II, our VAD systems are not
protected by any patents. We rely principally on trade secret
protection and, to a lesser extent patents, to protect our
rights to the HeartMate. We rely principally on patents to
protect our coagulation testing equipment and skin incision
devices.

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We seek to protect our trade secrets and
unpatented proprietary technology, in part, with confidentiality
agreements with our employees and consultants. Although it is
our policy to require that all employees and consultants sign
such agreements, we cannot assure you that every person who
gains access to such information has done so. Moreover, these
agreements may be breached and we may not have an adequate
remedy.

Our products may be found to infringe prior or
future patents owned by others. We may need to acquire licenses
under patents belonging to others for technology potentially
useful or necessary, and such licenses may not be available to
us. We could incur substantial costs in defending suits brought
against us on such patents or in bringing suits to protect our
patents or patents licensed by us against infringement.

We own or hold rights in some U.S. patents by
virtue of the Merger between Thoratec and Thermo Cardiosystems.
However, documents transferring ownership of some of these
patents have not yet been submitted to the PTO and, while
documents have been submitted to the PTO for others, those
documents have not yet been recorded by the PTO. Until documents
transferring rights to us as a result of the Merger are
recorded, our rights in the respective patents could be subject
to rights of others who purchased those rights from Thoratec or
Thermo Cardiosystems without knowledge of the Merger.

In addition, we have received correspondence from
another company alleging that our HeartMate infringes certain
patent rights of that company. We cannot assure you that we will
be successful if the matter is litigated.

Product liability claims could damage our
reputation and hurt our financial results.

Our business exposes us to an inherent risk of
potential product liability claims related to the manufacturing,
marketing and sale of human medical devices. We maintain only a
limited amount of product liability insurance. Our insurance
policies generally must be renewed on an annual basis. We may
not be able to maintain or increase such insurance on acceptable
terms or at reasonable costs, and such insurance may not provide
us with adequate coverage against potential liabilities. A
successful claim brought against us in excess of, or outside of,
our insurance coverage could seriously harm our financial
condition and results of operations. Claims against us,
regardless of their merit or potential outcome, may also reduce
our ability to obtain physician endorsement of our products or
expand our business.

If we make acquisitions or divestitures, we
could encounter difficulties that harm our business.

We may acquire companies, products or
technologies that we believe to be complementary to our
business. If we do so, we may have difficulty integrating the
acquired personnel, operations, products or technologies.
Acquisitions may dilute our earnings per share, disrupt our
ongoing business, distract our management and employees and
increase our expenses, which could harm our business. We may
also sell businesses or assets as part of our strategy or if we
receive offers from third parties. If we do so, we may sell an
asset or business for less than its full value.

The long and variable sales and deployment
cycles for our VAD systems may cause our revenue and operating
results to vary significantly, which increases the risk of an
operating loss for any given fiscal quarter.

Our VAD systems have lengthy sales cycles and we
may incur substantial sales and marketing expenses and expend
significant effort without making a sale. Even after making the
decision to purchase our VAD systems, our customers often deploy
our products slowly. For example, the length of time between
initial contact with cardiac surgeons and the purchase of our
VAD systems is generally between nine and eighteen months. As a
result, it is difficult for us to predict the quarter in which
our customers may purchase our VAD systems and our revenue and
operating results may vary significantly from quarter to
quarter, which increases the risk of an operating loss for us
for any given quarter.

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Our non-U.S. sales present special
risks.

During 2000, sales originating outside the United
States and U.S. export sales accounted for approximately 16% of
our total revenues. For 2001, sales originating outside the
United States and U.S. export sales accounted for approximately
20% of our total revenues. We anticipate that sales outside the
United States and U.S. export sales will continue to account for
a significant percentage of our revenues and we intend to
continue to expand our presence in international markets.
Non-U.S. sales are subject to a number of special risks. For
example:



| |   |                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | we generally sell many of our products at a lower
	price outside the United States;                                                                                                                  
|
| |  | agreements may be difficult to enforce;                                                                                                                                                              
|
| |  | receivables may be difficult to collect through a
	foreign countrys legal system;                                                                                                                   
|
| |  | foreign customers may have longer payment cycles;                                                                                                                                                    
|
| |  | foreign countries may impose additional
	withholding taxes or otherwise tax our foreign income, impose
	tariffs or adopt other restrictions on foreign trade;                                        
|
| |  | U.S. export licenses may be difficult to obtain;                                                                                                                                                     
|
| |  | intellectual property may be more difficult to
	enforce in foreign countries; and                                                                                                                    
|
| |  | fluctuations in exchange rates may affect product
	demand and adversely affect the profitability, in
	U.S. dollars, of products sold in foreign markets where
	payments are made in local currencies.

Any of these events could harm our operations.

Any claims relating to improper handling,
storage or disposal of hazardous chemicals and biomaterials
could be time consuming and costly.

Producing our products requires the use of
hazardous materials, including chemicals and biomaterials. We
cannot eliminate the risk of accidental contamination or
discharge and any resultant injury from these materials.

We could be subject to civil damages in the event
of an improper or unauthorized release of, or exposure of
individuals to, hazardous materials. In addition, claimants may
sue us for injury or contamination that results from our use or
the use by third parties of these materials, and our liability
may exceed our total assets. Compliance with environmental laws
and regulations may be expensive, and current or future
environmental regulations may impair our research, development
or production efforts.

Our stock price has been volatile, is likely
to continue to be volatile, and could decline
substantially.

The price of our common stock has been, and is
likely to continue to be, highly volatile. The price of our
common stock could fluctuate significantly for the following
reasons:



| |   |                                                                                                  
| | - | -------------------------------------------------------------------------------------------------
| |  | future announcements concerning us or our
	competitors;                                          
|
| |  | timing and reaction to the publication of
	clinical trial results;                               
|
| |  | quarterly variations in operating results;                                                       
|
| |  | charges, amortization and other financial effects
	relating to our Merger;                       
|
| |  | introduction of new products or changes in
	product pricing policies by us or our competitors;   
|
| |  | acquisition or loss of significant customers,
	distributors or suppliers;                        
|
| |  | business acquisitions or divestitures;                                                           
|
| |  | changes in earnings estimates by analysts;                                                       
|
| |  | changes in third party reimbursement practices;                                                  
|
| |  | regulatory developments and disclosure regarding
	completed ongoing or future clinical trials; or
|
| |  | fluctuations in the economy or general market
	conditions.                                       

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In addition, stock markets in general, and the
market for shares of health care stocks in particular, have
experienced extreme price and volume fluctuations in recent
years which have frequently been unrelated to the operating
performance of the affected companies. These broad market
fluctuations may adversely affect the market price of our common
stock. The market price of our common stock could decline below
its current price and the market price of our stock may
fluctuate significantly in the future. These fluctuations may be
unrelated to our performance.

In the past, shareholders have often instituted
securities class action litigation after periods of volatility
in the market price of a companys securities. If a
shareholder files a securities class action suit against us, we
would incur substantial legal fees and our managements
attention and resources would be diverted from operating our
business in order to respond to the litigation.

Future issuances and sales of our stock could
dilute shareholder ownership and cause our stock price to
decline.

Future sales of substantial amounts of our stock
in the public market, or the perception that such sales could
occur, could adversely affect the market price of our stock.
Sale of our shares and the potential for such sales, could cause
our stock price to decline.

The occurrence of a catastrophic disaster or
other similar events could cause damage to our facilities and
equipment, which would require us to cease or curtail
operations.

We are vulnerable to damage from various types of
disasters, including earthquake, fire, flood, power loss,
communications failures and similar events. For example, in
October 1989, a major earthquake that caused significant
property damage and a number of fatalities struck near the area
in which our Pleasanton facility is located. If any disaster
were to occur, we may not be able to operate our business at our
facilities, which could seriously harm our business and
operations. The insurance we maintain may not be adequate to
cover our losses resulting from disasters or other business
interruptions.

Management may invest or spend the proceeds of
our recent offering in ways you may not agree with and in ways
that may not yield a return.

Our management will have broad discretion as to
how the net proceeds of our recent offering will be used.
Investors will be relying on the judgment of management
regarding the application of the proceeds of the offering. The
results and effectiveness of the application of the proceeds are
uncertain.

Fluctuations in foreign currency exchange
rates could result in declines in our reported sales and
earnings.

Since our international sales are denominated in
local currencies and not in U.S. dollars, our reported
sales and earnings are subject to fluctuations in foreign
exchange rates. At present, we do not engage in hedging
transactions to protect against uncertainty in future exchange
rates between particular foreign currencies and the
U.S. dollar.

The competition for qualified personnel is
particularly intense in our industry. If we are unable to retain
or hire key personnel, we may not be able to sustain or grow our
business.

Our ability to operate successfully and manage
our potential future growth depends significantly upon retaining
key research, technical, sales, marketing, managerial and
financial personnel, and attracting and retaining additional
highly qualified personnel in these areas. We face intense
competition for such personnel, and we may not be able to
attract and retain these individuals. We compete with numerous
companies, as well as universities and nonprofit research
organizations throughout all our locations. The loss of key
personnel for any reason or our inability to hire and retain
additional qualified personnel in the future could prevent us
from sustaining or growing our business. Our success will depend
in large part on the continued services of our research,
managerial and manufacturing personnel. We cannot assure you
that we will continue to be able to attract and retain
sufficient qualified personnel.

22



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##### Table of Contents






Item 2.     Properties

We are headquartered in Pleasanton, California,
where we lease approximately 62,000 square feet of commercial
space. Our lease for these facilities expires in 2012.
Additionally, we lease the following facilities:



| |   |                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------
| |  | Approximately 11,000 square feet of office and
	research facilities in Rancho Cordova, California expiring
	in 2002,       
|
| |  | Approximately 24,000 square feet of office,
	manufacturing and research facilities in Edison, New Jersey
	expiring in 2017,
|
| |  | Approximately 3,800 square feet of office
	facilities in the United Kingdom expiring 2008, and                             
|
| |  | Approximately 34,000 square feet of space in
	Woburn, Massachusetts under a sublease expiring in 2004.                     

We also own approximately 66,000 square feet of
office, manufacturing and research facilities in Edison, New
Jersey.

Each of our manufacturing areas have been
inspected, approved and licensed for the manufacture of medical
devices by the FDA. Additionally, the Pleasanton facility is
subject to inspections, approvals and licensing by the State of
California Department of Health Services (Food and Drug
Section). The Edison facility is subject to inspections,
approvals and licensing by State of New Jersey Department of
Health.

We believe our facilities will be sufficient for
the next two years and that additional space will be available
at a reasonable price to satisfy space needs thereafter.




Item 3.     Litigation

We are not a party to any material legal
proceedings.




Item 4.     Submission
of Matters to a Vote of Security Holders

No matters were submitted to a vote of security
holders during the quarter ended December 29, 2001.

Our Officers

D. Keith
Grossman,* President, Chief
Executive Officer and Director, joined our company as
President and Chief Executive Officer in January 1996. He was
elected to the Board of Directors in February 1996. Prior to
joining us, Mr. Grossman was a Division President of Major
Pharmaceuticals, Inc., from June 1992 to September 1995, at
which time it was sold. From July 1988 to June 1992,
Mr. Grossman served as the Vice President of Sales and
Marketing for Calcitek, Inc., a manufacturer of implantable
medical devices, and division of SulzerMedica formerly
Intermedics, Inc. Prior to 1988, Mr. Grossman held various
other sales and marketing management positions within the McGaw
Laboratories Division of American Hospital Supply Corporation.

M. Wayne Boylston,* Senior Vice
President, Chief Financial Officer and Secretary,became our Senior Vice President,
Chief Financial Officer and Secretary in August 2001. Prior to
joining us, Mr. Boylston was Chief Financial Officer at
Flashcom, Inc., a provider of broadband communications services.
Flashcom filed for bankruptcy protection in December 2000. From
July 1998 until March 2000, Mr. Boylston served as
Executive Vice President, Chief Financial Officer, Treasurer and
Assistant Secretary of iXL Enterprises, Inc., an Internet
consulting service provider. From 1995 until 1998,
Mr. Boylston served as Vice President  Finance,
Chief Financial Officer and Treasurer of Healthdyne
Technologies, Inc., a medical device manufacturer. Prior to
1995, Mr. Boylston held a variety of financial management
positions with Healthdyne, Inc., a diversified healthcare
products and services company. Mr. Boylston is a Certified
Public Accountant.





---

* Denotes executive officer as of the date
of this report.


23



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##### Table of Contents



Lawrence Cohen, President of ITC,joined our Company in May 2001 as
President of ITC. Prior to joining ITC, Mr. Cohen served as
CEO of HemoSense, Inc., a developer of medical diagnostic
products, from August 1998 to April 2000. From October 1989 to
March 1998, Mr. Cohen held the positions of Vice President
Marketing and Sales, Vice President International and Worldwide
Executive Vice President at Ortho-Clinical Diagnostics, a
Johnson & Johnson company. From 1980 to 1989, Mr. Cohen
has also held executive management positions at Instrumentation
Laboratory and Beckman Coulter Corporation. He is a past
president of the Biomedical Marketing Association and is
currently on the Board of Trustees of the National Blood
Foundation.

David J. Farrar, Ph.D., Vice
President  Research and Development,joined our company as Program Manager
of our circulatory support products in January 1980 and became
Vice President  Circulatory Support Products in 1988,
and Vice President  Research & Development
in 1996. In addition, Dr. Farrar has a research appointment
in the Department of Cardiac Surgery at the California Pacific
Medical Center of San Francisco. Dr. Farrar has over
20 years of research experience in the cardiovascular and
medical device industry.

Bradley D. Goskowicz, Vice
President  Sales and Marketing,joined our company as Vice President,
Sales and Marketing in January 2001. Prior to joining our
company, Mr. Goskowicz was Director of Marketing in the
Cardiac Surgery Division of Medtronic, Inc. where he was
responsible for directing, developing and implementing marketing
strategies for a broad line of cardiovascular surgery products
worldwide. He joined Medtronic in March 1999, as part of
Medtronics acquisition of Avecor Cardiovascular, and was
one of the original Directors when Avecor Cardiovascular was
formed in 1991. Before assuming the role of Director of
Marketing, he held the position of Director of Sales. Prior to
1991 Mr. Goskowicz held various sales and marketing
positions with Bio-Medicus, Inc., Medtronic, Inc. and
Johnson & Johnson.

Jeffrey C. Mack, Vice President 
Finance,joined our company as
Controller in 1996. He became Director of Finance and Corporate
Controller in September 1999 and Vice President of Finance in
September 2000. Prior to joining our company, he served as
Director of Finance and Corporate Controller for The North Face,
a designer and manufacturer of outdoor apparel and equipment. He
also held various other financial and operational positions with
Kenetech Corporation, a manufacturer and operator of utility
grade wind turbines, and Deloitte & Touche, LLP.
Mr. Mack is a Certified Public Accountant.

Donald A. Middlebrook, Vice
President  Regulatory Affairs/Quality Assurance,joined our company as Vice
President  Regulatory Affairs/Quality Assurance in
September 1996. Before joining our company, he held the position
of Senior Director, Global Regulatory Affairs and Assurance for
Chiron Vision Corporation, a manufacturer of implantable
ophthalmic devices and surgical equipment. Prior to that,
Mr. Middlebrook spent fifteen years with Baxter
International in a number of positions, including Vice President
of Regulatory Affairs and Quality Assurance for the
CardioVascular Group, a producer of a wide range of
cardiopulmonary, critical care, vascular and cardiovascular
products.

Victor Poirier, Chief Technology Advisor,joined our company in
February 2001. Prior to joining us, Mr. Poirier was
President and Director of Thermo Cardiosystems from 1998 to
2001, and Chief Executive Officer, President and Director of
Thermo Cardiosystems from 1990 to 1998. Prior to that,
Mr. Poirier was Executive Vice President of Thermo
Cardiosystems and Sr. Vice President of Thermedics from
1984 to 2000. Mr. Poirier has more than 40 years of
research experience in the cardiovascular industry.

Joseph G. Sharpe, Vice President 
Operations,joined our company as Vice
President  Operations in September 1997. Prior to
joining us, Mr. Sharpe was Director of Operations for the
IV Systems Division of Baxter International, Inc. from 1992
to September 1997. Prior to that, Mr. Sharpe held a number
of other positions at Baxter International, Inc. including
Director of Engineering of the Pharmaseal Division, and
Honeywell Information Systems.

Beth A. Taylor, Vice President 
Human Resources,joined our company as
Director of Human Resources in November 1999 and became Vice
President of Human Resources in February 2001. Prior to joining
our company, Ms. Taylor served as Director of Human
Resources for CCI/Triad. She has also held various other human
resource positions such as Corporate Employee Development
Manager with Valent U.S.A. Corporation, and as Director of
Human Resources with Automatic Data Processing, Inc.

24



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##### Table of Contents






PART II




Item 5.     Market
for Common Equity and Related Stockholder Matters

Our common stock is traded on the NASDAQ National
Market under the symbol THOR. The following table
sets forth, for the periods indicated, the high and low closing
sales price per share of our common stock, as reported by the
NASDAQ National Market. As of March 8, 2002 there were
57,229,146 shares of our common stock outstanding with
approximately 931 holders of record, including multiple
beneficial holders at depositories, banks, and brokerages listed
as a single holder in the street name of each
respective depository, bank, or broker.

|                 |                |      |   |       |  |  |   |       | 
|---------------- | -------------- | ---- | - | ----- |  |  | - | ----- | 
|                 |                | High |   | Low  
|                 |                |      |   |      
|Fiscal Year 2000 |                |      |   |       |  |  |   |      
|                 | First Quarter  |      | $ | 19.88 |  |  | $ | 8.50  | 
|                 | Second Quarter |      |   | 18.63 |  |  |   | 8.50  | 
|                 | Third Quarter  |      |   | 24.75 |  |  |   | 15.13 | 
|                 | Fourth Quarter |      | $ | 20.56 |  |  | $ | 7.75  | 
|Fiscal Year 2001 |                |      |   |       |  |  |   |      
|                 | First Quarter  |      | $ | 12.88 |  |  | $ | 7.09  | 
|                 | Second Quarter |      |   | 15.55 |  |  |   | 6.56  | 
|                 | Third Quarter  |      |   | 20.02 |  |  |   | 13.77 | 
|                 | Fourth Quarter |      | $ | 20.85 |  |  | $ | 15.67 | 

We have not declared or paid any dividends on our
common stock and we anticipate that for the foreseeable future
we will continue to retain our earnings for use in our business.

25



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##### Table of Contents



Item 6.     Selected
Consolidated Financial Data

The selected consolidated financial data
presented below for the five fiscal years ended
December 29, 2001 is derived from audited financial
statements. The data set forth below should be read in
conjunction with Managements Discussion and Analysis
of Financial Condition and Results of Operations and our
financial statements and related notes thereto appearing
elsewhere in this Annual Report, the consolidated financial
statements of TCA filed with the SEC on Form 8-K/ A on
March 30, 2001 and on Form 10-K on March 17,
2000, March 12, 1999 and March 18, 1998 (as amended on
February 16, 1999). Certain reclassifications have been
made to the financial statements previously filed with the SEC
to conform to current practice.

The Merger of Thoratec with 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. 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 and therefore for fiscal years 1997, 1998, 1999 and
2000 all financial information presented herein represents the
results of operations of TCA. Our 2001 consolidated financial
information presented herein includes the financial results of
TCA for the full fiscal year and Thoratecs financial
results for the post-merger period from February 14, 2001
through December 29, 2001. The weighted average number of
common shares previously reported by TCA has been adjusted for
all periods presented to reflect the exchange ratio of
0.835 to 1.

Our fiscal year ends on the Saturday closest to
December 31. Accordingly, our fiscal year will periodically
contain more or less than 365 days. For example, 1997 ended
on January 3, 1998, 1998 ended on January 1, 1999,
1999 ended on December 31, 1999, 2000 ended on
December 30, 2000, and 2001 ended on December 29, 2001.

|                                                          |  |                                       |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|--------------------------------------------------------- |  | ------------------------------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- |  |  | - | ------- | 
|                                                          |  |                                      
|                                                          |  | Fiscal Year                          
|                                                          |  |                                      
|                                                          |  | 2001                                  |         | 2000 |  | 1999 |         | 1998 |  | 1997
|                                                          |  |                                       |         |      |  |      |         |      |  |     
|                                                          |  |                                      
|                                                          |  | (In thousands, except per share data)
|Statement of Operations:                                  |  |                                       |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|Product sales                                             |  | $                                     | 113,384 |      |  | $    | 83,396  |      |  | $    | 78,611  |  |  | $ | 65,301  |  |  | $ | 60,842  | 
|Gross profit                                              |  |                                       | 60,544  |      |  |      | 48,566  |      |  |      | 45,285  |  |  |   | 38,244  |  |  |   | 25,462  | 
|Amortization of goodwill and purchased intangible
	assets |  |                                       | 15,674  |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|In-process research and development                       |  |                                       | 76,858  |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|Merger, restructuring and other costs                     |  |                                       | 7,134   |      |  |      | 1,831   |      |  |      |        |  |  |   |        |  |  |   |        | 
|Net income (loss)                                         |  |                                       | (87,866 | )    |  |      | 7,524   |      |  |      | 9,584   |  |  |   | 7,820   |  |  |   | 9,019   | 
|Basic and diluted earnings (loss) per share               |  | $                                     | (1.68   | )    |  | $    | 0.23    |      |  | $    | 0.30    |  |  | $ | 0.24    |  |  | $ | 0.28    | 
|Balance Sheet Data:                                       |  |                                       |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|Cash and cash equivalents                                 |  | $                                     | 91,726  |      |  | $    | 30,236  |      |  | $    | 418     |  |  | $ | 42,026  |  |  | $ | 71,158  | 
|Working capital                                           |  |                                       | 135,924 |      |  |      | 149,207 |      |  |      | 115,471 |  |  |   | 98,904  |  |  |   | 136,702 | 
|Total assets                                              |  |                                       | 530,241 |      |  |      | 176,685 |      |  |      | 169,928 |  |  |   | 172,363 |  |  |   | 173,208 | 
|Subordinated convertible debentures                       |  |                                       | 54,838  |      |  |      | 54,838  |      |  |      | 58,011  |  |  |   | 70,000  |  |  |   | 70,000  | 
|Long-term deferred tax liability and other                |  |                                       | 81,020  |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|Total shareholders equity                                |  | $                                     | 373,343 |      |  | $    | 105,869 |      |  | $    | 96,940  |  |  | $ | 88,714  |  |  | $ | 92,963  | 

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Item 7.     Managements
Discussion and Analysis of Financial Condition and Results of
Operations

The statements in Managements
Discussion and Analysis of Financial Condition and Results of
Operations that relate to future plans, events or
performance are forward-looking statements which involve risks
and uncertainties. These factors, and others, are discussed more
fully below and in the prospectus, as amended and supplemented,
contained in our Registration Statement on Form S-3 filed
with the SEC on February 12, 2002, and our other filings
with the SEC. Actual results, events or performance may differ
materially from those anticipated in these forward-looking
statements as a result of a variety of factors, including those
set forth in Risk Factors presented elsewhere in
this Annual Report on Form 10-K. Readers are cautioned not
to place undue reliance on these forward-looking statements,
which speak only as of the date hereof. We undertake no
obligation to publicly release the result of any revisions to
these forward-looking statements that may be needed to reflect
events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.

Overview

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

The Merger with Thermo Cardiosystems

On February 14, 2001, we completed our
Merger with TCA. Pursuant to the Merger agreement between
Thoratec and TCA dated October 3, 2000, we issued
32,226,074 shares of our common stock to the shareholders of TCA
in exchange for all the outstanding common stock of TCA
(38,594,281 shares outstanding as of February 14, 2001) at
an exchange ratio of 0.835 to 1. Immediately following the
transaction, TCAs shareholders owned 59% of our then
outstanding common stock and our former shareholders owned the
remaining shares of our common stock. Thermo Electron, the
majority shareholder of TCA prior to the Merger, received
19,312,959 shares of the 32,226,074 newly issued shares.
Immediately following the Merger, Thermo Electron owned
approximately 35% of our then outstanding shares of common
stock. As of the date of this report, Thermo Electron owns
approximately 14% of our total outstanding shares.

The Merger was accounted for under the purchase
method of accounting and was treated as a reverse acquisition
because the shareholders of TCA owned the majority of our common
stock after the Merger. TCA was deemed the acquirer for
accounting and financial reporting purposes. Accordingly, all
financial information prior to 2001 included in this report
reflects TCAs results.

Due to the nature of the reverse acquisition,
Thoratecs assets and liabilities were recorded based upon
estimated fair values at the date of acquisition. As of
December 29, 2001, $309.1 million of the purchase
price of $346.2 million has been allocated to goodwill and
other purchased intangible assets. As a result of the Merger,
$76.9 million relating to in-process research and
development was expensed upon completion of the Merger. Through
the end of 2001, goodwill and other intangibles were amortized
over their estimated useful lives of six to twenty years.
Beginning in 2002, we adopted Statement of Financial Accounting
Standards, or SFAS, No. 142, Goodwill and Other
Intangible Assets. SFAS No. 142 requires companies to
cease amortizing goodwill that existed at June 30, 2001 and
also establishes a new method of testing goodwill for impairment
on an annual basis or on an interim basis if an event occurs or
circumstances change that would

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##### Table of Contents



reduce the fair value of a reporting unit below
its carrying value. As such, at the beginning of 2002, we
stopped amortizing goodwill and began testing goodwill for
impairment under the new standard. If impairment occurs, such
impairment could harm our future results of operations. We
expect that the adoption of SFAS No. 142 will result in a
decrease in goodwill amortization of approximately
$5.0 million in 2002.


Pursuant to the terms of a Registration Rights
Agreement between us and Thermo Electron dated October 3,
2000, we filed a Registration Statement on Form S-3 with
the SEC, which became effective on June 15, 2001, to
register for resale 4,828,240 shares of our common stock held by
Thermo Electron. Subsequent to that filing, Thermo Electron sold
substantially all of the 4,828,240 registered shares from which
we received no proceeds. We filed another Registration Statement
on Form S-3 with the SEC to register 1,055,000 newly issued
shares of our common stock and to register for resale 5,945,000
shares of our common stock held by selling shareholders, of
which 5,825,000 shares were held by Thermo Electron. This
registration statement became effective on February 12,
2002 and all shares registered were sold on February 15,
2002. We received $16.1 million, net of underwriting fees
and discounts, but before other expenses of the offering, from
the sale of the 1,055,000 newly issued shares. In addition the
underwriters exercised a 30-day option to purchase from Thermo
Electron 1,050,000 shares of our common stock to cover any
over-allotments. We received no proceeds from the sale of shares
by selling shareholders or from the sale of the over-allotment
shares. As of the date of this report, Thermo Electron owns
approximately 14% of our total outstanding common stock.

Restructuring Plan

In June 2001, we approved a plan to consolidate
all of our ventricular assist device manufacturing operations to
our manufacturing facilities and headquarters in Pleasanton,
California, which we call the Restructuring Plan. The
restructuring initiatives, which have already commenced, are
related to our desire to provide maximum value to customers
through achievement of operating efficiencies. We estimate that
annual savings of approximately $2.0 million will result
upon completion of this plan. This plan specifically provides
for the reduction of approximately 90 of our manufacturing and
related workforce at our Woburn and Chelmsford, Massachusetts
facilities, both of which were acquired in the Merger in
February 2001. We notified the affected employees during the
second quarter of 2001 both through direct personal contact and
written notification. The Chelmsford facility was closed in
February 2002. Our HeartMate family of products, which are
currently manufactured at the Woburn facility, will be
transitioned to the Pleasanton facility. The restructuring
activities are estimated to take 18 months because of FDA
certification requirements for the relocated manufacturing
operations in Pleasanton. Through December 29, 2001, we
have accrued $1.1 million of restructuring charges, in
accordance with Emerging Issues Task Force (EITF) 94-3,
Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity, and Staff
Accounting Bulletin (SAB) 100, Restructuring and
Impairment Charges. These charges represent estimated
severance costs and stock option acceleration charges. As of
December 29, 2001, we have paid approximately
$0.1 million in severance payments to 2 employees
related to the restructuring. We expect to pay out the remaining
accrued restructuring charges by the end of 2002.

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##### Table of Contents



Results of Operations

The following table sets forth selected
consolidated statements of operations data for the years
indicated as a percentage of total product sales:

|                                                          |                          |             |     |      |  |      |     |    |  |  |     |    | 
|--------------------------------------------------------- | ------------------------ | ----------- | --- | ---- |  | ---- | --- | -- |  |  | --- | -- | 
|                                                          |                          |            
|                                                          |                          | Fiscal Year
|                                                          |                          |            
|                                                          |                          | 2001        |     | 2000 |  | 1999
|                                                          |                          |             |     |      |  |     
|Product sales                                             |                          |             | 100 | %    |  |      | 100 | %  |  |  | 100 | % 
|Cost of product sales                                     |                          |             | 47  |      |  |      | 42  |    |  |  | 42  |   
|                                                          |                          |             |     |      |  |      |     |    |  |  |     |   
|Gross profit                                              |                          |             | 53  |      |  |      | 58  |    |  |  | 58  |   
|                                                          |                          |             |     |      |  |      |     |    |  |  |     |   
|Operating expenses:                                       |                          |             |     |      |  |      |     |    |  |  |     |   
|Selling, general & administrative                         |                          |             | 29  |      |  |      | 28  |    |  |  | 28  |   
|Research & development                                    |                          |             | 19  |      |  |      | 20  |    |  |  | 21  |   
|Amortization of goodwill and purchased intangible
	assets |                          |             | 14  |      |  |      |    |    |  |  |    |   
|In-process research and development                       |                          |             | 68  |      |  |      |    |    |  |  |    |   
|Merger, restructuring and other costs                     |                          |             | 6   |      |  |      | 2   |    |  |  |    |   
|                                                          |                          |             |     |      |  |      |     |    |  |  |     |   
|                                                          | Total operating expenses |             |     | 136  |  |      |     | 50 |  |  |     | 49 | 
|Income (loss) from operations                             |                          |             | (83 | )    |  |      | 8   |    |  |  | 9   |   
|Interest and other income  net                           |                          |             | 2   |      |  |      | 6   |    |  |  | 5   |   
|                                                          |                          |             |     |      |  |      |     |    |  |  |     |   
|Income (loss) before income taxes and
	extraordinary item |                          |             | (81 | )    |  |      | 14  |    |  |  | 14  |   
|Income tax expense (benefit)                              |                          |             | (3  | )    |  |      | 5   |    |  |  | 4   |   
|                                                          |                          |             |     |      |  |      |     |    |  |  |     |   
|Income (loss) before extraordinary item                   |                          |             | (78 | )    |  |      | 9   |    |  |  | 10  |   
|Extraordinary item  net of tax                           |                          |             |    |      |  |      |    |    |  |  | 2   |   
|                                                          |                          |             |     |      |  |      |     |    |  |  |     |   
|Net income (loss)                                         |                          |             | (78 | )%   |  |      | 9   | %  |  |  | 12  | % 
|                                                          |                          |             |     |      |  |      |     |    |  |  |     |   

Fiscal Years 2001 and 2000



| |              
| | -------------
| | Product Sales

Product sales in 2001 were $113.4 million
compared to $83.4 million in 2000, an increase of
$30.0 million or 36%. This increase was primarily
attributable to the addition of Thoratec product sales of
$34.7 million as a result of our Merger and an increase in
other medical equipment sales of $1.2 million, partially
offset by a $5.9 million reduction in sales of HeartMate
products due primarily to significant distractions and
uncertainties among TCAs sales force during the first and
second quarters of 2001 while the Merger was being closed and
the companies were being integrated.

The impact of the reduction in HeartMate sales
was principally in the VAD domestic market because we use
employees to sell these products domestically compared to the
international markets where distributors are primarily used.
Domestic sales of the HeartMate in 2001 were $7.4 million
lower than the previous year, partially offset by a
$1.5 million increase in sales of the HeartMate
internationally. The decrease in domestic HeartMate sales in
2001 was also attributable, in part, to fluctuations in the
ventricular assist device market as customers used existing
inventories to address their implantation needs.

The increase in sales of other medical equipment
of $1.2 million was primarily due to increases in sales of
our ProTime products of $1.4 million and coagulation
products of $0.5 million, partially offset by a decrease in
sales of our skin incision products of $0.7 million.



| |             
| | ------------
| | Gross Profit

Gross profit in 2001 was $60.5 million, or
53% of product sales, compared to $48.6 million, or 58% of
product sales in 2000. This decrease in gross profit as a
percentage of sales was primarily due to a lower proportion of
domestic sales to total product sales as our products that are
sold in the United States generally

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have a higher gross profit than those sold in the
rest of the world. In addition, production costs for the
HeartMate product line were higher in 2001 due to
$1.4 million of employee retention and plant relocation
costs and $0.4 million of write-offs of product inventory
related to the HeartMate pneumatic driver, which was
discontinued in the second half of 2001.


In addition, approximately 1% of our decrease in
gross profit as a percentage of sales was attributable to a
lower gross profit on our other medical equipment product line.
This decrease was primarily due to lower average selling prices
of our skin incision products because of increased market
competition.



| |                                     
| | ------------------------------------
| | Selling, General and
	Administrative

Selling, general, and administrative expenses in
2001 were $32.3 million, or 29% of product sales, compared
to $23.6 million, or 28% of revenues, in 2000, an increase
of $8.7 million, or 37%. This increase resulted from the
addition of Thoratecs selling, general and administrative
expenses of $12.0 million as a result of our Merger, offset
by lower employee related expenses due to personnel reductions
primarily in the sales and marketing areas since the Merger.



| |                         
| | ------------------------
| | Research and Development

Research and development expenses in 2001 were
$22.1 million, or 20% of product sales, compared to
$16.2 million, or 19% of product sales, in 2000, an
increase of $5.9 million, or 36%. This increase resulted
from the addition of Thoratecs research and development
expenses of $8.0 million as a result of our Merger, offset
by a decrease in clinical trial and other costs related to the
TLC-II, Aria graft and REMATCH trials and various other research
and development projects.



| |                                                          
| | ---------------------------------------------------------
| | Amortization of Goodwill and Purchased
	Intangible Assets

Amortization of goodwill and purchased intangible
assets in 2001 was $15.7 million, or 14% of product sales.
As of December 29, 2001, goodwill of $99.5 million and
intangible assets of $209.6 million have been recorded as a
result of our Merger and are being amortized over their
estimated useful lives of six to twenty years. Beginning in
2002, we have stopped amortizing goodwill in accordance with
SFAS No. 142, which requires companies to cease amortizing
goodwill that existed as of June 30, 2001 and begin
evaluating goodwill for impairment. We expect that the adoption
of SFAS No. 142 will result in a decrease in goodwill
amortization of approximately $5.0 million in 2002.



| |                                           
| | ------------------------------------------
| | In-process Research and Development
	Costs

In-process research and development expense in
2001 was $76.9 million, or 68% of product sales, and
represents the one-time write-off of nonrecurring charges
associated with our Merger in February 2001 for technology that
had not reached technological feasibility, had no alternative
future use and for which successful development was uncertain.

The valuation of intangibles related to the
Merger was based upon our managements estimates of after
tax net cash flow using discount rates ranging from 42% to 48%.
The valuation gave consideration to the following:
(i) comprehensive due diligence concerning all potential
intangibles; (ii) the value of developed and core
technology, ensuring that the relative allocation to core
technology and in-process research and development was
consistent with the contribution of each to the final products;
and (iii) the allocation to in-process research and
development based upon a calculation that only considered the
efforts completed as of the date of the Merger, and only the
cash flows associated with the completion or acceleration of
existing products. The valuations were performed by an
independent valuation group and were deemed reasonable in light
of all the quantitative and qualitative information available.

There have been no significant developments
subsequent to the Merger related to the current status of any of
the in-process research and development, or 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 products continues and while the timing
of completion of these projects may vary due to the highly
regulatory and

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technical nature of our products, current
estimates remain materially consistent with our initial
estimates. The current status of each IPR&D project follows:




| |                                                   
| | --------------------------------------------------
| | Thoratec VAD (Discharge and Therapeutic
	Recovery)

We continue to participate in various studies
designed to demonstrate the Thoratec VADs role to provide
ventricular assistance in patients after they have been
discharged from the hospital and as a support to recovery of the
heart from open-heart surgery, acute cardiac failure and various
infections of the heart muscle. Cost projections for this
project are consistent with initial estimates. At the time of
the Merger, the estimated cost to complete the studies was
approximately $2.3 million. We hope to complete these
studies and obtain approval from the FDA in 2002.



| |              
| | -------------
| | TLC-II Driver

The TLC-II Driver received FDA approval in 2001.



| |     
| | ----
| | IVAD

Conditional approval to start IVAD clinical
trials in the U.S. has been received from the FDA and cost
projections are consistent with initial estimates. At the time
of the Merger, the estimated cost to complete this project was
approximately $2.5 million. We hope that the IVAD will be
approved by the FDA in 2003.



| |           
| | ----------
| | Aria Graft

Clinical trials for the Aria graft are ongoing
and cost projections are consistent with initial estimates. At
the time of the Merger, the estimated cost to complete the Aria
graft was approximately $4.7 million. We hope that the Aria
graft will be completed and approved by the FDA in 2004.

There can be no assurances that we will be able
to complete the development of these products on a timely basis.
Failure to complete these projects could have an adverse impact
on our financial condition or results of operations.



| |                                       
| | --------------------------------------
| | Merger, Restructuring and Other
	Costs

Merger, restructuring and other charges in 2001
were $7.1 million, or 6% of product sales, compared to
$1.8 million, or 2% of product sales, in 2000, an increase
of $5.3 million, or 290%. The $7.1 million of merger,
restructuring and other charges included merger related costs
consisting mainly of employee severance of $2.8 million,
executive waiver agreement costs of $0.7 million,
consulting, accounting and legal expenses of $1.8 million,
restructuring costs of $1.1 million, representing estimated
severance costs related to the consolidation of ventricular
assist device manufacturing operations, and costs of
$0.7 million related to the events of September 11,
2001. Merger, restructuring and other costs for 2000 consisted
of pre-merger retention costs for TCA employees of
$1.8 million.



| |                                 
| | --------------------------------
| | Interest and Other Income 
	Net

Interest and other income  net in 2001
was $2.4 million, or 2% of product sales, compared to
$5.0 million, or 6% of product sales, in 2000, a decrease
of $2.6 million, or 52%. This decrease was due to a
$2.5 million reduction in interest income caused by both
lower cash balances and a reduction in interest rates.



| |             
| | ------------
| | Income Taxes

Our effective tax benefit rate was 4% in 2001
compared to an effective tax provision rate of 39% in 2000. Our
effective tax benefit rate for 2001 differed from the statutory
federal income tax rate primarily due to the impact on the
reported net loss of nondeductible expenses related to our
Merger with TCA, including the write-off of IPR&D costs, the
amortization of goodwill and other nondeductible merger
transaction costs. For

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2000, the effective tax provision rate exceeded
the federal statutory income tax rate primarily due to the
impact of state income taxes.




| |                   
| | ------------------
| | Extraordinary Item

We recorded an extraordinary gain of
$0.2 million as a result of our purchase of a portion of
our 4.75% subordinated convertible debentures. There was no
extraordinary item in 2001.

Fiscal Years 2000 and 1999



| |              
| | -------------
| | Product Sales

Product sales in 2000 were $83.4 million
compared to $78.6 million in 1999, an increase of
$4.8 million or 6%. Ventricular assist device revenues
increased to $43.1 million in 2000 from $39.8 million
in 1999, due to an increase in revenues from our HeartMate
products, principally due to higher demand. Product sales from
blood coagulation testing and skin incision devices increased to
$40.3 million in 2000 from $38.8 million in 1999 due
to a $2.0 million increase in revenues from blood
coagulation testing systems due to increased demand and the
introduction of new products, offset in part by a decrease in
revenues from skin incision devices due to lower demand caused
by competitive pricing pressures.



| |             
| | ------------
| | Gross Profit

Gross profit in 2000 was $48.6 million, or
58% of product sales, compared to $45.3 million, or 58% of
product sales in 1999. An increase in the average sales price
for the HeartMate and improved overhead absorption were offset
by a decrease in gross profit margin for blood coagulation
testing and skin incision devices during 2000.



| |                                     
| | ------------------------------------
| | Selling, General and
	Administrative

Selling, general, and administrative expenses in
2000 were $23.6 million, or 28% of product sales, compared
to $22.0 million, or 28% of revenues, in 1999, an increase
of $1.6 million or 7%. This increase was due to an increase
in selling and marketing expenses in support of increased
product sales.



| |                         
| | ------------------------
| | Research and Development

Research and development expenses in 2000 were
$16.2 million, or 20% of product sales, compared to
$16.0 million, or 21% of product sales, in 1999, an
increase of $0.2 million or 1%. This increase was due to
increased expenses relating to ventricular assist products for
the development of the HeartMate II and continuing expenses
related to the REMATCH trial.



| |                                       
| | --------------------------------------
| | Merger, Restructuring and Other
	Costs

Merger, restructuring and other charges in 2000
were $1.8 million, or 2% of product sales. All merger,
restructuring and other charges were due to employee retention
costs in connection with the Merger. There were no such charges
in 1999.



| |                                 
| | --------------------------------
| | Interest and Other Income 
	Net

Interest and other income  net in 2000
was $5.0 million, or 6% of product sales, compared to
$4.0 million, or 5% of product sales, in 1999, an increase
of $1.0 million or 25%. Interest income increased to
$7.6 million in 2000 from $7.1 million in 1999, due to
an increase in interest rates. Interest expense decreased to
$2.9 million in 2000 from $3.6 million in 1999, due to
the purchase of $15.2 million principal amount of our 4.75%
subordinated convertible debentures due 2004.

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| |             
| | ------------
| | Income Taxes

The effective tax rate in 2000 was 39% compared
to 26% in 1999. Our effective tax rate exceeded the statutory
federal income tax rate in 2000 due to the impact of state
income taxes. Our effective tax rate was lower than the
statutory federal income tax rate in 1999 as a result of a
favorable resolution of our claim for prior-year research and
development tax credits. The effect of the credit decreased the
tax provision recorded in 1999 by $1.5 million.



| |                   
| | ------------------
| | Extraordinary Item

We recorded extraordinary gains of
$0.2 million and $1.2 million in 2000 and 1999,
respectively, resulting from the purchase of a portion of our
4.75% subordinated convertible debentures.

Liquidity and Capital Resources

At the end of 2001, we had working capital of
$135.9 million compared with $149.2 million at the end
of 2000, a decrease of $13.3 million. Cash and cash
equivalents at the end of 2001 were $91.7 million compared
to $128.9 million at the end of 2000, a decrease of
$37.2 million. The 2001 statement of cash flows was
prepared by combining TCAs balance sheet as of December
2000 with Thoratecs balance sheet as of the Merger date of
February 14, 2001, and comparing it to the consolidated
balance sheet as of December 29, 2001, which included both
entities.

Cash used by operating activities was
$3.1 million in 2001, compared with cash provided of
$8.7 million in 2000 and $6.7 million in 1999. The
decrease in operating cash flows was due to higher accounts
receivable and lower accounts payable and other liabilities
balances as a result of the addition of Thoratecs
operations as of the merger date.

Cash provided by investing activities was
$55.3 million in 2001, compared with cash provided of
$23.4 million in 2000 and cash used of $37.3 million
in 1999. The increase in cash flows was due to the sale and
maturity of $52.8 million in short-term investments, and
cash acquired in the Merger of $16.2 million, offset by
transaction costs of $5.8 million capitalized in conjunction
with the Merger and capital expenditures of $7.9 million. Cash
used for capital expenditures in 2001 increased to
$7.9 million from $2.4 million in 2000 and
$2.5 million in 1999. The higher level of capital
expenditures in 2001 was due primarily to the acquisition of a
new enterprise resource planning system and research and
development equipment.

Cash provided by financing activities was
$9.4 million in 2001, compared to cash used of
$2.3 million in 2000 and $11.0 million in 1999. The
increase in cash flows in 2001 was due to cash received from the
exercise of stock options of $11.1 million, offset by stock
repurchases of $1.7 million. In 2000 and 1999, we
repurchased $2.8 million and $10.0 million in
principle of our subordinated convertible debentures. No
subordinated convertible debentures were repurchased in 2001.

During 2001, we made cash payments of
$11.8 million for merger, restructuring and other costs.
These payments consisted mainly of employee retention and
severance costs, legal, banking and accounting costs related to
the Merger. During 2001, prior to the Merger, TCA incurred
$5.8 million of merger costs, consisting principally of
banking, legal and accounting costs, which were paid and
capitalized in the purchase consideration (now a component of
goodwill).

On April 12, 2001, we announced a stock
repurchase program under which up to $20 million in market value
of our common stock may be acquired in the open market or in
privately negotiated transactions. The number of shares to be
purchased and the timing of purchases is based on several
conditions, including the price of our stock, general market
conditions and other factors. Through December 29, 2001,
$1.7 million in common stock was repurchased, representing
192,700 shares. These repurchased shares were subsequently
retired.

Pursuant to the terms of a Registration Rights
Agreement between us and Thermo Electron dated October 3,
2000, we filed a Registration Statement on Form S-3 with
the SEC, which became effective on June 15, 2001, to
register for resale 4,828,240 shares of our common stock held by
Thermo Electron.

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Subsequent to that filing, Thermo Electron sold
substantially all of the 4,828,240 registered shares from which
we received no proceeds. We filed another Registration Statement
on Form S-3 with the SEC to register 1,055,000 newly issued
shares of our common stock and to register for resale 5,945,000
shares of our common stock held by selling shareholders, of
which 5,825,000 shares were held by Thermo Electron. This
registration statement became effective on February 12,
2002 and all shares registered were sold on February 15,
2002. We received $16.1 million, net of underwriting fees
and discounts, but before other expenses of the offering, from
the sale of the 1,055,000 newly issued shares. In addition the
underwriters exercised a 30-day option to purchase from Thermo
Electron 1,050,000 shares of our common stock to cover any
over-allotments. We received no proceeds from the sale of shares
by selling shareholders or from the sale of these over-allotment
shares. As of the date of this report, Thermo Electron owns
approximately 14% of our total outstanding common stock.


On January 23, 2002, we announced a plan to
redeem at par value all outstanding 4.75% convertible
subordinated debentures due 2004, which were originally issued
by TCA. We completed the redemption on March 11, 2002 using
our restricted cash and cash equivalents of $45.9 million and
cash of $9.8 million. We will record an extraordinary loss in
the first quarter of 2002 related to the write-off of
capitalized debt issuance costs associated with the initial
issuance of the debentures, which were being amortized over the
life of the debentures. As of December 29, 2001, the
remaining balance of capitalized debt issuance costs was $0.5
million.

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

The impact of inflation on our financial position
and the results of operations was not significant during either
2001 or 2000.

Critical Accounting Policies

We have identified the policies below as critical
to our business operations and the understanding of our results
of operations. The impact and any associated risks related to
these policies on our business operations is discussed below.
For a more detailed discussion on the application of these and
other accounting policies, see the Notes to the Consolidated
Financial Statements included in this Annual Report on
Form 10-K. The preparation of financial statements in
accordance with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amount of assets, liabilities, revenue and
expenses and the disclosure of contingent assets and
liabilities. There can be no assurance that actual results will
not differ from those estimates.



| |                  
| | -----------------
| | Merger Accounting

On February 14, 2001, Thoratec completed its
Merger with TCA. Pursuant to the Merger agreement between
Thoratec and TCA, Thoratec issued new shares of its common stock
to the shareholders of TCA in exchange for all the outstanding
common stock of TCA. Immediately following the transaction,
TCAs shareholders owned 59% of the then outstanding common
stock of Thoratec and the former Thoratec shareholders owned the
remaining shares of Thoratec common stock. The merger was
treated as a reverse acquisition because the shareholders of TCA
owned the majority of Thoratec common stock after the Merger.
TCA was considered the acquiror for accounting and financial
reporting purposes. The Merger was accounted for under the
purchase method of accounting. Under that method, the fair
market value of the outstanding Thoratec common stock,
determined using volume-weighted average stock trading prices
beginning two days before and ending two days after the
announcement of the merger, was used to establish the purchase
price for accounting purposes. Due to the reverse acquisition,
Thoratecs assets and liabilities were recorded based upon
their estimated fair values at the date of acquisition. The fair
value of Thoratecs net assets have been estimated for
purposes of allocating the purchase price. The purchase price is
also allocated to intangible

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assets, including goodwill. As of
December 29, 2001, approximately $309.1 million of the
total purchase price of $346.2 million has been allocated
to goodwill and other purchased intangibles. The determination
of the value of such intangible assets requires management to
make estimates and assumptions that affect our consolidated
financial statements. The amounts allocated to goodwill and
other intangible assets will affect the amount of amortization
expense we recognize in future periods and could result in a
possible impairment expense if at some future date such assets
were determined to be impaired.


As a result of the Merger, $76.9 million
relating to in-process research and development, or IPR&D,
has been expensed in the first quarter of 2001. The write-off of
IPR&D related to projects that were in development, had not
reached technological feasibility, had no alternative future use
and for which successful development was uncertain. There have
been no significant developments subsequent to the Merger
related to the current status of any of the 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
regulatory and technical nature of the Companys products,
current estimates remain materially consistent with the
Companys initial estimates.



| |                    
| | -------------------
| | Revenue Recognition

The Company recognizes revenue from product sales
provided persuasive evidence of an arrangement exists, title has
passed (generally upon shipment) or services have been rendered,
the selling price is fixed or determinable and collectibility is
reasonably assured. Estimated contractual warranty obligations
are recorded when related sales are recognized. Sales to
distributors are recorded when title transfers upon shipment.
One distributor has certain limited product return rights. A
limited number of other distributors have certain rights of
return upon termination of their distribution agreement. A
reserve for sales returns is recorded for these customers
applying reasonable estimates of product returns based upon
significant historical experience in accordance with SFAS
No. 48, Revenue Recognition When Right of Return
Exists. No other direct sales customers or distributors
have return rights or price protection.

Sales of certain Cardiovascular segment products
to first-time customers are recognized when it has been
determined that the customer has the ability to use such
products. These sales frequently include the sale of products
and training services under multiple element arrangements. For
most customers, training is not essential to the functionality
of the products as the customers already possess sufficient
expertise and experience to use the products. In these
situations, training is provided as a best practice to optimize
the use and success of the products. The amount of sales under
these arrangements allocated to training is based upon fair
market value of the training, performed principally by third
party providers. The amount of sales allocated to the
Cardiovascular segment products is done on a residual method
basis. Under this method, the total value of the arrangement is
allocated first to the undelivered training element based on the
fair market value, with the remainder being allocated to the
Cardiovascular segment products. The amount of sales allocated
to training is recorded as deferred revenue and is recognized
when the training is completed.

Certain judgments affect the application of our
revenue recognition policies. Revenue results and product
returns are difficult to predict, and any shortfall in revenue
or delay in recognizing revenue could cause our operating
results to vary significantly from quarter to quarter and could
result in future operating results.



| |         
| | --------
| | Reserves

We maintain allowances for doubtful accounts for
estimated losses resulting from the inability of our customers
to make payments owed to us for product sales. If the financial
condition of our customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional
allowances may be required.

We write down our inventory for estimated
obsolescence or unmarketable inventory equal to the difference
between the cost of inventory and the estimated market value
based upon assumptions about future demand and market
conditions. If actual market conditions are less favorable than
those projected by our management, additional inventory
write-downs may be required.

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Accrued merger costs recorded during 2001 and
2000 principally consisted of employee severance, pre-merger
employee retention costs, and outside consulting, accounting and
legal expenses associated with our Merger. Early in 2000, Thermo
Electron announced its intent to sell TCA. In conjunction with
this announcement, TCA put in place an employee retention plan,
which offered a bonus to certain key employees to continue
employment with TCA through the completion of the sale of the
company. Management estimated the accrual for employee severance
and employee retention costs based upon amounts to be paid as
specified in agreements with the employees and anticipated
turnover rates. Management estimated the accrual for outside
consulting, accounting and legal expenses based on estimated
fees from the third parties. The ultimate amount of merger costs
to be paid is dependent upon the completion of all
merger-related activities and could differ from the amounts
originally estimated.

In June 2001, we approved a Restructuring Plan to
consolidate all of our ventricular assist device manufacturing
operations to our manufacturing facilities and headquarters in
Pleasanton, California. Through December 29, 2001, we have
accrued $1.0 million of restructuring charges in accordance
with Emerging Issues Task Force 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity and Staff Accounting Bulletin
100, Restructuring and Impairment Charges. These
charges represent estimated severance costs. The Restructuring
Plan is estimated to take 18 months because of FDA
certification requirements for the new manufacturing activities
in Pleasanton. Substantially all of the milestones related to
the relocation that are controllable by us will be completed
within 12 months of the date of announcement. Because our
products are regulated by the FDA, it is estimated it will take
an additional six months to complete the FDA review and
certification process before the HeartMate products can be
manufactured in Pleasanton. We believe we can make reasonable
estimates of the involuntary employee termination benefits since
we have specifically identified the employees that will be
involuntarily terminated as well as the benefits that each
affected employee will receive. We do not believe there are
likely to be any developments during the intervening
18 months required to relocate the manufacturing
operations, which would have a significant impact on our
original restructuring cost estimates. Although the relocation
plan has been documented, in detail, small changes in the timing
of specific activities are expected. The impact on the estimate
for these changes is not expected to be material.



| |            
| | -----------
| | Commitments

As of December 29, 2001, we have the
following outstanding commitments:

Subordinated Convertible
Debt In May 1997, we
issued $70 million worth of 4.75% subordinated convertible
debentures due May 2004. Interest is payable semi-annually in
November and May of each year. The outstanding debentures are
convertible into our common stock at a price of $37.62 per
share. To date, no debentures have been exchanged for shares. On
January 23, 2002, we announced a plan to redeem all of the
outstanding subordinated debentures at par plus accrued
interest. We completed the redemption on March 11, 2002
using our restricted cash and cash equivalents of
$45.9 million and cash of $9.8 million. We will record
an extraordinary loss in the first quarter of 2002 related to
the write-off of capitalized debt issuance costs associated with
the initial issuance of the debentures, which were being
amortized over the life of the debentures. As of
December 29, 2001, the remaining balance of capitalized
debt issuance costs was $0.5 million.

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Leases
The Company leases manufacturing, office, research facilities,
and equipment under various operating lease agreements. Future
minimum lease payments as of the end of 2001 are noted below:

|             |  |   |      |  |  |  |         | 
|------------ |  | - | ---- |  |  |  | ------- | 
|Fiscal year: |  |   |      | 
|             |  |   |      | 
|2002         |  | $ | 1.7  |  |  |  | million | 
|2003         |  |   | 1.6  |  |  |  | million | 
|2004         |  |   | 1.3  |  |  |  | million | 
|2005         |  |   | 1.2  |  |  |  | million | 
|2006         |  |   | 1.2  |  |  |  | million | 
|Thereafter   |  |   | 9.7  |  |  |  | million | 
|             |  |  
|Total        |  | $ | 16.7 |  |  |  | million | 
|             |  |  

Rent expense for all operating leases was
$1.8 million in 2001, $0.6 million in 2000 and
$0.5 million in 1999.

Included in these leases is a sublease of office
and research facilities from Thermo Electron. We are charged for
actual square footage occupied at approximately the same rent
paid per square foot by Thermo Electron under its prime lease.
The sublease expires in February 2004. Our statements of income
include expenses from the sublease of $0.2 million for each
of 2001, 2000 and 1999, respectively.

Future minimum annual payments due under these
noncancellable sublease arrangements at December 29, 2001,
are $0.2 million in 2002 and 2003 and $32,000 in 2004.

Purchase
Commitments We had various
firm purchase commitments totaling approximately
$13.0 million at December 29, 2001.

We purchase metal fabrication products and
services from Tecomet, Inc. in connection with the manufacture
of the ventricular-assist products we sell. Tecomet was a
division of Thermo Electron until November 15, 2001 when it
was sold by Thermo Electron to an unrelated third party. We paid
$2.9 million $3.3 million and $3.7 million to
Tecomet in 2001, 2000 and 1999, respectively.

Other
Commitments Upon closing
the Merger with TCA in February 2001, $45 million in cash
and cash equivalents was pledged as collateral for a letter of
credit guarantee to Thermo Electron Corporation related to
Thermo Electrons guarantee of our subordinated debentures.
This letter of credit is fully collateralized with cash and cash
equivalents, which are recorded in restricted cash and cash
equivalents on our 2001 balance sheet. The balance of the
restricted cash and cash equivalents as of December 29,
2001 was $45.9 million, which includes interest earnings.
In March 2002, all of the subordinated debentures were redeemed
using the restricted cash and cash equivalents and $9,793,000 of
additional cash (see Note 7 to our 2001 consolidated
financial statements). As a result of the redemption, the letter
of credit guarantee to Thermo Electron was extinguished.

In July 1998, we established an Executive Officer
Severance Benefits Plan and an Employee Severance Benefits Plan
as part of the employee benefits package. The plans provide
severance benefits to certain employees whose employment is
terminated, other than for cause. An Executive Officers
standard severance pay benefit is equal to one times annualized
base salary. An employees severance benefit is equal to an
amount based on job level and length of service.

Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards
Board, or FASB, approved SFAS No. 141, Business
Combinations, and SFAS No. 142, Goodwill
and Other Intangible Assets. SFAS No. 141
prohibits the pooling of interests method of accounting for
business combinations initiated after June 30, 2001.
SFAS No. 142, which is effective for fiscal years
beginning after December 15, 2001, requires companies to
cease amortizing goodwill that existed at June 30, 2001 and
establishes a new method of testing goodwill and intangibles for
impairment. Allocations made to certain intangible assets and
goodwill, as well as the useful

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lives assigned to intangible assets in the TCA
merger will be re-assessed. We have adopted SFAS No. 141
and 142 effective the beginning of 2002. We expect that the
adoption of SFAS No. 142 will result in a decrease in
goodwill amortization of $5.0 million in 2002. Amortization
of goodwill was $4.4 million for the year ended
December 29, 2001. Amortization of purchased intangibles
was $11.3 million for the year ended December 29, 2001.


To test goodwill for impairment under the new
standard, we will establish reporting units to which assets,
liabilities and goodwill will be allocated. Goodwill will be
tested for impairment on an annual basis or on an interim basis
if an event occurs or circumstances change that could reduce the
fair value of the reporting unit below its carrying amount.
Impairment tests will be performed using the lower of cost or
market, purchase price allocation two-step approach. The first
step requires comparison of the fair value of the reporting unit
to its carrying amount. If the fair value of a reporting unit is
less than its carrying amount, the second step is performed
which requires allocation of the fair value of the reporting
unit to the assets, liabilities and goodwill of that unit as if
the unit had been acquired in a business combination and the
fair value of the reporting unit determined in step 1 was the
price paid to acquire the reporting unit. Goodwill is considered
to be impaired to the extent that the amount allocated to
goodwill in the hypothetical purchase price allocation is below
the carrying amount of the goodwill. If an impairment occurs it
will be included in income from operations and could have a
negative impact on our future results of operations.

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

In October 2000, the FASB approved
SFAS No. 144, Accounting for the Impairment of
Long-Lived Assets. This Statement addresses financial
accounting and reporting for the impairment or disposal of
long-lived assets. This Statement supersedes FASB Statement
No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of, and
the accounting and reporting provisions of 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, for the
disposal of a segment of a business (as previously defined in
that Opinion). This Statement also amends ARB No. 51,
Consolidated Financial Statements, to eliminate the
exception to consolidation for a subsidiary for which control is
likely to be temporary. The Company will adopt this Standard at
the beginning of fiscal year 2002. We do not expect the adoption
of SFAS No. 144 to have a material impact on our financial
position, results of operations or cash flows.




Item 7A.     Quantitative
and Qualitative Disclosures About Market Risk

Subordinated Debentures

Our subordinated debentures carry a fixed rate of
interest of 4.75% and are currently callable at par value. At
December 29, 2001, the fair value of our subordinated
debentures was $52.9 million and is estimated based on
broker information available to us for debentures with similar
terms and remaining maturities. We believe the fair value of our
subordinated debentures is below our carrying value due
primarily to a lack of liquidity in the market for these types
of subordinated debentures and the current price of our common
stock being below the stated conversion price of the debentures.

On January 23, 2002, we announced a plan to
redeem at par value all outstanding 4.75% convertible
subordinated debentures due 2004, which were originally issued
by TCA. We completed the redemption on March 11, 2002 using
our restricted cash and cash equivalents of $45.9 million
and cash of $9.8 million. We will record an extraordinary
loss in the first quarter of 2002 related to the write-off of
capitalized debt issuance costs associated with the initial
issuance of the debentures, which were being amortized over the
life of the debentures. As of December 29, 2001, the
remaining balance of capitalized debt issuance costs was
$0.5 million.

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Short-Term Investments

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

Foreign Currency Rate Fluctuations

We conduct business in foreign countries. Our
international operations consist primarily of sales and service
personnel for our ventricular assist products. The employees
report into our U.S. sales and marketing group and are
internally reported as part of that group. All assets and
liabilities of our non-U.S. operations are translated into
U.S. dollars at the period-end exchange rates. The
resulting translation adjustments are included in comprehensive
income. The period-end translation of the non-functional
currency balances (the result of foreign sales, foreign
expenses, and intercompany transactions) in our wholly-owned
subsidiary in the United Kingdom at the period-end exchange rate
into the functional currency of our subsidiary results in
foreign currency exchange gains and losses. These foreign
currency exchange gains and losses are included in interest and
other income-net. Net foreign currency exchange loss was
approximately $0.1 million for 2001. There were no such
gains or losses in 2000 as Thoratecs United Kingdom
subsidiary did not become part of our operations until
completion of our Merger on February 14, 2001. Currently,
we do not expect to be subject to material foreign currency risk
with respect to future costs or cash flows from our foreign
operations. To date, we have not entered into any significant
foreign currency hedging contracts or other derivative financial
instruments to hedge the effects of adverse fluctuations in
foreign currency exchange, however, we are currently evaluating
possible future use of such contracts and instruments.

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Item 8.     Financial
Statements and Supplementary Data

THORATEC CORPORATION AND
SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS

|                                                                |  |      |    | 
|--------------------------------------------------------------- |  | ---- | -- | 
|                                                                |  | Page
|                                                                |  |     
|Financial Statements:                                           |  |      |    | 
|Independent Auditors Report 
	Deloitte & Touche LLP           |  |      | 41 | 
|Report of Independent Public
	Accountants  Arthur Andersen LLP |  |      | 42 | 
|Consolidated Balance Sheets                                     |  |      | 43 | 
|Consolidated Statements of Operations                           |  |      | 44 | 
|Consolidated Statements of Comprehensive Income
	(Loss)         |  |      | 45 | 
|Consolidated Statements of Shareholders
	Equity                |  |      | 46 | 
|Consolidated Statements of Cash Flows                           |  |      | 47 | 
|Notes to Consolidated Financial Statements                      |  |      | 48 | 

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INDEPENDENT AUDITORS REPORT

To the Shareholders and Board of Directors of

Thoratec Corporation:


We have audited the accompanying consolidated
balance sheet of Thoratec Corporation and subsidiaries (the
Company) as of December 29, 2001 and the
related consolidated statements of operations, comprehensive
income (loss), shareholders equity and cash flows for the
year then ended. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audit in accordance with
auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.

In our opinion, such consolidated financial
statements present fairly, in all material respects, the
financial position of Thoratec Corporation and subsidiaries as
of December 29, 2001 and the results of their operations
and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of
America.

/s/ DELOITTE & TOUCHE LLP

San Francisco, California

February 21, 2002,


(March 11, 2002 as to Note 7)


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REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS

To the Shareholders and Board of Directors of
Thoratec Corporation:

We have audited the accompanying consolidated
balance sheet of Thoratec Corporation (formerly Thermo
Cardiosystems Inc., a Massachusetts corporation and 60%-owned
subsidiary of Thermo Electron Corporation) and subsidiaries as
of December 30, 2000, and the related consolidated
statements of income, cash flows, and comprehensive income and
shareholders investment for each of the two years in the
period ended December 30, 2000. These consolidated
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of Thoratec Corporation
(formerly Thermo Cardiosystems Inc.) and subsidiaries as of
December 30, 2000, and the results of their operations and
their cash flows for each of the two years in the period ended
December 30, 2000, in conformity with accounting principles
generally accepted in the United States.



| |                        
| | -----------------------
| | /s/ ARTHUR ANDERSEN LLP

Boston, Massachusetts

February 5, 2001


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THORATEC CORPORATION AND
SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS

|                                           |                                                                                                      |                                    |                                            |         |         |         |        |        |         |         |  
|------------------------------------------ | ---------------------------------------------------------------------------------------------------- | ---------------------------------- | ------------------------------------------ | ------- | ------- | ------- | ------ | ------ | ------- | ------- | -
|                                           |                                                                                                      |                                   
|                                           |                                                                                                      | As of Fiscal Years                
|                                           |                                                                                                      |                                   
|                                           |                                                                                                      | 2001                               |                                            | 2000   
|                                           |                                                                                                      |                                    |                                            |        
|                                           |                                                                                                      |                                   
|                                           |                                                                                                      | (In thousands)                    
|ASSETS                                    
|Current assets:                            |                                                                                                      |                                    |                                            |         |         |         |        |       
|                                           | Cash and cash equivalents                                                                            |                                    | $                                          | 91,726  |         |         | $      | 30,236 |        
|                                           | Short-term available-for-sale investments at
	quoted market value, amortized cost of $98,743 in 2000 |                                    |                                            |        |         |         |        | 98,682 |        
|                                           | Receivables, net of allowances of $551 in 2001
	and $939 in 2000                                     |                                    |                                            | 26,988  |         |         |        | 15,358 |        
|                                           | Inventories                                                                                          |                                    |                                            | 25,673  |         |         |        | 17,381 |        
|                                           | Deferred tax asset                                                                                   |                                    |                                            | 11,789  |         |         |        | 3,454  |        
|                                           | Prepaid expenses and other                                                                           |                                    |                                            | 788     |         |         |        | 74     |        
|                                           |                                                                                                      |                                    |                                            |         |         |         |        |       
|                                           |                                                                                                      | Total current assets               |                                            |         | 156,964 |         |        |        | 165,185 |        
|Property, plant and equipment, net         |                                                                                                      |                                    | 22,645                                     |         |         |         | 7,084  |       
|Restricted cash and cash equivalents       |                                                                                                      |                                    | 45,884                                     |         |         |         |       |       
|Goodwill                                   |                                                                                                      |                                    | 95,209                                     |         |         |         |       |       
|Purchased intangible assets                |                                                                                                      |                                    | 198,608                                    |         |         |         |       |       
|Long-term deferred tax asset               |                                                                                                      |                                    | 9,313                                      |         |         |         | 2,619  |       
|Other assets                               |                                                                                                      |                                    | 1,618                                      |         |         |         | 1,797  |       
|                                           |                                                                                                      |                                    |                                            |         |         |         |        |       
|                                           |                                                                                                      | Total Assets                       |                                            | $       | 530,241 |         |        | $      | 176,685 |        
|                                           |                                                                                                      |                                    |                                            |         |         |         |        |       
|                                          
|LIABILITIES AND SHAREHOLDERS
	EQUITY     
|Current liabilities:                       |                                                                                                      |                                    |                                            |         |         |         |        |       
|                                           | Accounts payable                                                                                     |                                    | $                                          | 8,271   |         |         | $      | 3,972  |        
|                                           | Accrued compensation                                                                                 |                                    |                                            | 6,481   |         |         |        | 3,999  |        
|                                           | Accrued merger and restructuring                                                                     |                                    |                                            | 1,335   |         |         |        | 1,708  |        
|                                           | Estimated liabilities for warranty, legal and
	other                                                 |                                    |                                            | 1,781   |         |         |        | 1,316  |        
|                                           | Other accrued liabilities                                                                            |                                    |                                            | 3,172   |         |         |        | 4,983  |        
|                                           |                                                                                                      |                                    |                                            |         |         |         |        |       
|                                           |                                                                                                      | Total current liabilities          |                                            |         | 21,040  |         |        |        | 15,978  |        
|Subordinated convertible debentures        |                                                                                                      |                                    | 54,838                                     |         |         |         | 54,838 |       
|Long-term deferred tax liability and other |                                                                                                      |                                    | 81,020                                     |         |         |         |       |       
|                                           |                                                                                                      |                                    |                                            |         |         |         |        |       
|                                           |                                                                                                      | Total Liabilities                  |                                            |         | 156,898 |         |        |        | 70,816  |        
|Commitments                                |                                                                                                      |                                    |                                            |         |         |         |        |       
|Shareholders equity:                      |                                                                                                      |                                    |                                            |         |         |         |        |       
|                                           | Common shares; 100,000 authorized, issued and
	outstanding 56,114 in 2001 and 32,215 in 2000         |                                    |                                            | 409,081 |         |         |        | 49,125 |        
|                                           | Deferred compensation                                                                                |                                    |                                            | (4,555  | )       |         |        | (251   | )      
|                                           | Retained earnings (accumulated deficit)                                                              |                                    |                                            | (31,166 | )       |         |        | 57,025 |        
|                                           | Accumulated other comprehensive income (loss):                                                       |                                    |                                            |         |         |         |        |        |        
|                                           |                                                                                                      | Unrealized loss on investments     |                                            |         |        |         |        |        | (39     | )      
|                                           |                                                                                                      | Cumulative translation adjustments |                                            |         | (17     | )       |        |        | 9       |        
|                                           |                                                                                                      |                                    |                                            |         |         |         |        |       
|                                           |                                                                                                      |                                    | Total accumulated other comprehensive loss |         |         | (17     | )      |        |         | (30     | )
|                                           |                                                                                                      |                                    |                                            |         |         |         |        |       
|                                           |                                                                                                      |                                    | Total Shareholders Equity                 |         |         | 373,343 |        |        |         | 105,869 |  
|                                           |                                                                                                      |                                    |                                            |         |         |         |        |       
|                                           |                                                                                                      |                                    | Total Liabilities and Shareholders Equity |         | $       | 530,241 |        |        | $       | 176,685 |  
|                                           |                                                                                                      |                                    |                                            |         |         |         |        |       

See notes to consolidated financial statements.

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THORATEC CORPORATION AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                                  |                                                           |                                       |         |        |         |      |        |        |        |   |        |        |        | 
|------------------------------------------------- | --------------------------------------------------------- | ------------------------------------- | ------- | ------ | ------- | ---- | ------ | ------ | ------ | - | ------ | ------ | ------ | 
|                                                  |                                                           |                                      
|                                                  |                                                           | For the Fiscal Years Ended           
|                                                  |                                                           |                                      
|                                                  |                                                           | 2001                                  |         | 2000   |         | 1999
|                                                  |                                                           |                                       |         |        |         |     
|                                                  |                                                           |                                      
|                                                  |                                                           | (In thousands, except per share data)
|Product sales                                     |                                                           | $                                     | 113,384 |        |         | $    | 83,396 |        |        | $ | 78,611 |       
|Cost of product sales                             |                                                           |                                       | 52,840  |        |         |      | 34,830 |        |        |   | 33,326 |       
|                                                  |                                                           |                                       |         |        |         |      |        |        |        |   |        |       
|Gross profit                                      |                                                           |                                       | 60,544  |        |         |      | 48,566 |        |        |   | 45,285 |       
|                                                  |                                                           |                                       |         |        |         |      |        |        |        |   |        |       
|Operating expenses:                               |                                                           |                                       |         |        |         |      |        |        |        |   |        |       
|                                                  | Selling general and administrative                        |                                       |         | 32,346 |         |      |        | 23,587 |        |   |        | 22,018 |       
|                                                  | Research and development                                  |                                       |         | 22,082 |         |      |        | 16,190 |        |   |        | 16,044 |       
|                                                  | Amortization of goodwill and purchased intangible
	assets |                                       |         | 15,674 |         |      |        |       |        |   |        |       |       
|                                                  | In-process research and development                       |                                       |         | 76,858 |         |      |        |       |        |   |        |       |       
|                                                  | Merger, restructuring and other costs                     |                                       |         | 7,134  |         |      |        | 1,831  |        |   |        |       |       
|                                                  |                                                           |                                       |         |        |         |      |        |        |        |   |        |       
|                                                  |                                                           | Total operating expenses              |         |        | 154,094 |      |        |        | 41,608 |   |        |        | 38,062 | 
|                                                  |                                                           |                                       |         |        |         |      |        |        |        |   |        |       
|Income (loss) from operations                     |                                                           |                                       | (93,550 | )      |         |      | 6,958  |        |        |   | 7,223  |       
|Interest and other income  net                   |                                                           |                                       | 2,359   |        |         |      | 5,005  |        |        |   | 4,014  |       
|                                                  |                                                           |                                       |         |        |         |      |        |        |        |   |        |       
|Income (loss) before taxes and extraordinary item |                                                           |                                       | (91,191 | )      |         |      | 11,963 |        |        |   | 11,237 |       
|Income tax expense (benefit)                      |                                                           |                                       | (3,325  | )      |         |      | 4,630  |        |        |   | 2,865  |       
|                                                  |                                                           |                                       |         |        |         |      |        |        |        |   |        |       
|Income (loss) before extraordinary item           |                                                           |                                       | (87,866 | )      |         |      | 7,333  |        |        |   | 8,372  |       
|Extraordinary item  net of tax                   |                                                           |                                       |        |        |         |      | 191    |        |        |   | 1,212  |       
|                                                  |                                                           |                                       |         |        |         |      |        |        |        |   |        |       
|Net income (loss)                                 |                                                           | $                                     | (87,866 | )      |         | $    | 7,524  |        |        | $ | 9,584  |       
|                                                  |                                                           |                                       |         |        |         |      |        |        |        |   |        |       
|Basic and diluted earnings (loss) per share       |                                                           | $                                     | (1.68   | )      |         | $    | 0.23   |        |        | $ | 0.30   |       
|                                                  |                                                           |                                       |         |        |         |      |        |        |        |   |        |       
|Shares used to compute earnings (loss) per share: |                                                           |                                       |         |        |         |      |        |        |        |   |        |       
|                                                  | Basic                                                     |                                       |         | 52,336 |         |      |        | 32,193 |        |   |        | 32,100 |       
|                                                  | Diluted                                                   |                                       |         | 52,336 |         |      |        | 32,209 |        |   |        | 32,132 |       

See notes to consolidated financial statements.

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THORATEC CORPORATION AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME (LOSS)

|                                       |                                          |                            |         |      |   |      |       |     |   |   |       |      |  
|-------------------------------------- | ---------------------------------------- | -------------------------- | ------- | ---- | - | ---- | ----- | --- | - | - | ----- | ---- | -
|                                       |                                          |                           
|                                       |                                          | For the Fiscal Years Ended
|                                       |                                          |                           
|                                       |                                          | 2001                       |         | 2000 |   | 1999
|                                       |                                          |                            |         |      |   |     
|                                       |                                          |                           
|                                       |                                          | (In thousands)            
|Net income (loss)                      |                                          | $                          | (87,866 | )    |   | $    | 7,524 |     |   | $ | 9,584 |     
|Other net comprehensive income (loss): |                                          |                            |         |      |   |      |       |     |   |   |       |     
|                                       | Unrealized gain (loss) on securities     |                            |         | 39   |   |      |       | 299 |   |   |       | (458 | )
|                                       | Foreign currency translation adjustments |                            |         | (26  | ) |      |       | (38 | ) |   |       | 18   |  
|                                       |                                          |                            |         |      |   |      |       |     |   |   |       |     
|Comprehensive income (loss)            |                                          | $                          | (87,853 | )    |   | $    | 7,785 |     |   | $ | 9,144 |     
|                                       |                                          |                            |         |      |   |      |       |     |   |   |       |     

See notes to consolidated financial statements.

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THORATEC CORPORATION AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS
EQUITY

|                                                                                    |                                                                                        |                |        |              |  |          |         |               |  |               |         |        |  |   |        |   |  |   |      |      |   |   |         |      |  
|----------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------- | -------------- | ------ | ------------ |  | -------- | ------- | ------------- |  | ------------- | ------- | ------ |  | - | ------ | - |  | - | ---- | ---- | - | - | ------- | ---- | -
|                                                                                    |                                                                                        |                |        | Retained     |  |          |         | Accumulated   |  |              
|                                                                                    |                                                                                        | Common Stock   |        | Earnings     |  |          |         | Other         |  | Total        
|                                                                                    |                                                                                        |                |        | (Accumulated |  | Deferred |         | Comprehensive |  | Shareholders
|                                                                                    |                                                                                        | Shares         |        | $            |  | Deficit) |         | Compensation  |  | Inc (Loss)    |         | Equity
|                                                                                    |                                                                                        |                |        |              |  |          |         |               |  |               |         |       
|                                                                                    |                                                                                        |               
|                                                                                    |                                                                                        | (In thousands)
|BALANCE, FISCAL YEAR ENDED 1998                                                     |                                                                                        |                | 32,139 |              |  | $        | 48,649  |               |  | $             | 39,917  |        |  | $ |       |   |  | $ | 149  |      |   | $ | 88,715  |     
|Exercise of common stock options for cash                                           |                                                                                        |                | 7      |              |  |          | 49      |               |  |               |         |        |  |   |        |   |  |   |      |      |   |   | 49      |     
|Common stock issued under restricted common stock
	award                            |                                                                                        |                | 56     |              |  |          | 625     |               |  |               |         |        |  |   | (625   | ) |  |   |      |      |   |   |        |     
|Activity under employees and
	directors stock plans                               |                                                                                        |                | 14     |              |  |          | (145    | )             |  |               |         |        |  |   |        |   |  |   |      |      |   |   | (145    | )   
|Repurchase of common stock                                                          |                                                                                        |                | (88    | )            |  |          | (925    | )             |  |               |         |        |  |   |        |   |  |   |      |      |   |   | (925    | )   
|Deferred compensation amortization                                                  |                                                                                        |                |        |              |  |          |         |               |  |               |         |        |  |   | 104    |   |  |   |      |      |   |   | 104     |     
|Other comprehensive income:                                                         |                                                                                        |                |        |              |  |          |         |               |  |               |         |        |  |   |        |   |  |   |      |      |   |   |         |     
|                                                                                    | Unrealized loss on available-for-sale
	investments, net of reclassification adjustment |                |        |              |  |          |         |               |  |               |         |        |  |   |        |   |  |   |      | (458 | ) |   |         | (458 | )
|                                                                                    | Foreign currency translation adjustment                                                |                |        |              |  |          |         |               |  |               |         |        |  |   |        |   |  |   |      | 18   |   |   |         | 18   |  
|Net income                                                                          |                                                                                        |                |        |              |  |          |         |               |  |               | 9,584   |        |  |   |        |   |  |   |      |      |   |   | 9,584   |     
|                                                                                    |                                                                                        |                |        |              |  |          |         |               |  |               |         |        |  |   |        |   |  |   |      |      |   |   |         |     
|BALANCE, FISCAL YEAR ENDED 1999                                                     |                                                                                        |                | 32,128 |              |  | $        | 48,253  |               |  | $             | 49,501  |        |  | $ | (521   | ) |  | $ | (291 | )    |   | $ | 96,942  |     
|                                                                                    |                                                                                        |                |        |              |  |          |         |               |  |               |         |        |  |   |        |   |  |   |      |      |   |   |         |     
|Exercise of common stock options for cash                                           |                                                                                        |                | 44     |              |  |          | 266     |               |  |               |         |        |  |   |        |   |  |   |      |      |   |   | 266     |     
|Exercise of common stock warrant for cash                                           |                                                                                        |                | 50     |              |  |          | 350     |               |  |               |         |        |  |   |        |   |  |   |      |      |   |   | 350     |     
|Tax benefit related to employees and
	directors stock plans                       |                                                                                        |                |        |              |  |          | 319     |               |  |               |         |        |  |   |        |   |  |   |      |      |   |   | 319     |     
|Activity under employees and
	directors stock plans                               |                                                                                        |                | (5     | )            |  |          | 19      |               |  |               |         |        |  |   |        |   |  |   |      |      |   |   | 19      |     
|Termination of restricted common stock award                                        |                                                                                        |                | (2     | )            |  |          | (82     | )             |  |               |         |        |  |   | 82     |   |  |   |      |      |   |   |        |     
|Amortization of deferred compensation                                               |                                                                                        |                |        |              |  |          |         |               |  |               |         |        |  |   | 188    |   |  |   |      |      |   |   | 188     |     
|Other comprehensive income:                                                         |                                                                                        |                |        |              |  |          |         |               |  |               |         |        |  |   |        |   |  |   |      |      |   |   |         |     
|                                                                                    | Unrealized gain on available-for-sale
	investments, net of reclassification adjustment |                |        |              |  |          |         |               |  |               |         |        |  |   |        |   |  |   |      | 299  |   |   |         | 299  |  
|                                                                                    | Foreign currency translation adjustment                                                |                |        |              |  |          |         |               |  |               |         |        |  |   |        |   |  |   |      | (38  | ) |   |         | (38  | )
|Net income                                                                          |                                                                                        |                |        |              |  |          |         |               |  |               | 7,524   |        |  |   |        |   |  |   |      |      |   |   | 7,524   |     
|                                                                                    |                                                                                        |                |        |              |  |          |         |               |  |               |         |        |  |   |        |   |  |   |      |      |   |   |         |     
|BALANCE, FISCAL YEAR ENDED 2000                                                     |                                                                                        |                | 32,215 |              |  | $        | 49,125  |               |  | $             | 57,025  |        |  | $ | (251   | ) |  | $ | (30  | )    |   | $ | 105,869 |     
|                                                                                    |                                                                                        |                |        |              |  |          |         |               |  |               |         |        |  |   |        |   |  |   |      |      |   |   |         |     
|Common stock issued in connection with merger of
	Thoratec and Thermo Cardiosystems |                                                                                        |                | 22,452 |              |  |          | 306,889 |               |  |               |         |        |  |   | (841   | ) |  |   |      |      |   |   | 306,048 |     
|Common Stock options granted for Thermo
	Cardiosystems merger                       |                                                                                        |                |        |              |  |          | 33,524  |               |  |               |         |        |  |   |        |   |  |   |      |      |   |   | 33,524  |     
|Common stock issued for services                                                    |                                                                                        |                | 12     |              |  |          | 136     |               |  |               |         |        |  |   |        |   |  |   |      |      |   |   | 136     |     
|Non-cash compensation for services                                                  |                                                                                        |                |        |              |  |          | 166     |               |  |               |         |        |  |   |        |   |  |   |      |      |   |   | 166     |     
|Exercise of common stock options for cash                                           |                                                                                        |                | 1,378  |              |  |          | 11,077  |               |  |               |         |        |  |   |        |   |  |   |      |      |   |   | 11,077  |     
|Tax benefit related to employees and
	directors stock plans                       |                                                                                        |                |        |              |  |          | 5,402   |               |  |               |         |        |  |   |        |   |  |   |      |      |   |   | 5,402   |     
|Common stock issued under restricted common stock
	award                            |                                                                                        |                | 250    |              |  |          | 4,140   |               |  |               |         |        |  |   | (4,140 | ) |  |   |      |      |   |   |        |     
|Repurchase of common stock                                                          |                                                                                        |                | (193   | )            |  |          | (1,378  | )             |  |               | (325    | )      |  |   |        |   |  |   |      |      |   |   | (1,703  | )   
|Amortization of deferred compensation                                               |                                                                                        |                |        |              |  |          |         |               |  |               |         |        |  |   | 677    |   |  |   |      |      |   |   | 677     |     
|Other comprehensive income:                                                         |                                                                                        |                |        |              |  |          |         |               |  |               |         |        |  |   |        |   |  |   |      |      |   |   |         |     
|                                                                                    | Unrealized gain on available-for-sale
	investments, net of reclassification adjustment |                |        |              |  |          |         |               |  |               |         |        |  |   |        |   |  |   |      | 39   |   |   |         | 39   |  
|                                                                                    | Foreign currency translation adjustment                                                |                |        |              |  |          |         |               |  |               |         |        |  |   |        |   |  |   |      | (26  | ) |   |         | (26  | )
|Net Income (Loss)                                                                   |                                                                                        |                |        |              |  |          |         |               |  |               | (87,866 | )      |  |   |        |   |  |   |      |      |   |   | (87,866 | )   
|                                                                                    |                                                                                        |                |        |              |  |          |         |               |  |               |         |        |  |   |        |   |  |   |      |      |   |   |         |     
|BALANCE, FISCAL YEAR ENDED 2001                                                     |                                                                                        |                | 56,114 |              |  | $        | 409,081 |               |  | $             | (31,166 | )      |  | $ | (4,555 | ) |  | $ | (17  | )    |   | $ | 373,343 |     
|                                                                                    |                                                                                        |                |        |              |  |          |         |               |  |               |         |        |  |   |        |   |  |   |      |      |   |   |         |     

See notes to consolidated financial statements.

46



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##### Table of Contents



THORATEC CORPORATION AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                                                                    |                                                                    |                                                      |         |        |        |      |        |          |        |   |         |          |         |  
|--------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------ | ---------------------------------------------------- | ------- | ------ | ------ | ---- | ------ | -------- | ------ | - | ------- | -------- | ------- | -
|                                                                                                    |                                                                    |                                                     
|                                                                                                    |                                                                    | For the Fiscal Years Ended                          
|                                                                                                    |                                                                    |                                                     
|                                                                                                    |                                                                    | 2001                                                 |         | 2000   |        | 1999
|                                                                                                    |                                                                    |                                                      |         |        |        |     
|                                                                                                    |                                                                    |                                                     
|                                                                                                    |                                                                    | (In thousands)                                      
|Cash flows from operating
	activities:                                                              |                                                                    |                                                      |         |        |        |      |        |          |        |   |         |         
|Net income (loss)                                                                                   |                                                                    | $                                                    | (87,866 | )      |        | $    | 7,524  |          |        | $ | 9,584   |         
|Adjustments to reconcile net income (loss) to net
	cash provided by (used in) operating activities: |                                                                    |                                                      |         |        |        |      |        |          |        |   |         |         
|                                                                                                    | Depreciation and amortization                                      |                                                      |         | 19,845 |        |      |        | 2,840    |        |   |         | 2,880    |        
|                                                                                                    | Write-off of in-process research and development
	costs            |                                                      |         | 76,858 |        |      |        |         |        |   |         |         |        
|                                                                                                    | Non-cash compensation expense                                      |                                                      |         | 303    |        |      |        |         |        |   |         |         |        
|                                                                                                    | Amortization of deferred compensation                              |                                                      |         | 677    |        |      |        | 270      |        |   |         | 104      |        
|                                                                                                    | Change in net deferred tax liability                               |                                                      |         | (2,993 | )      |      |        |         |        |   |         | (780     | )      
|                                                                                                    | Gain on sale of investments                                        |                                                      |         |       |        |      |        | (3       | )      |   |         |         |        
|                                                                                                    | Extraordinary item, net of taxes                                   |                                                      |         |       |        |      |        | (191     | )      |   |         | (1,212   | )      
|Changes in assets and liabilities:                                                                  |                                                                    |                                                      |         |        |        |      |        |          |        |   |         |         
|                                                                                                    | Receivables                                                        |                                                      |         | (5,892 | )      |      |        | (1,000   | )      |   |         | (2,132   | )      
|                                                                                                    | Inventories                                                        |                                                      |         | (560   | )      |      |        | (2,444   | )      |   |         | (3,012   | )      
|                                                                                                    | Prepaid expenses and other assets                                  |                                                      |         | 814    |        |      |        | (7       | )      |   |         | 640      |        
|                                                                                                    | Accounts payable and other liabilities                             |                                                      |         | (4,326 | )      |      |        | 1,745    |        |   |         | 589      |        
|                                                                                                    |                                                                    |                                                      |         |        |        |      |        |          |        |   |         |         
|                                                                                                    |                                                                    | Net cash provided by (used in) operating
	activities |         |        | (3,140 | )    |        |          | 8,734  |   |         |          | 6,661   |  
|                                                                                                    |                                                                    |                                                      |         |        |        |      |        |          |        |   |         |         
|Cash flows from investing
	activities:                                                              |                                                                    |                                                      |         |        |        |      |        |          |        |   |         |         
|                                                                                                    | Repayments from affiliate, net                                     |                                                      |         |       |        |      |        | 13,961   |        |   |         | (13,961  | )      
|                                                                                                    | Purchases of short-term available-for-sale
	investments            |                                                      |         |       |        |      |        | (120,002 | )      |   |         | (160,722 | )      
|                                                                                                    | Sales and maturities of short-term
	available-for-sale investments |                                                      |         | 52,838 |        |      |        | 131,802  |        |   |         | 139,943  |        
|                                                                                                    | Capitalized transaction costs                                      |                                                      |         | (5,838 | )      |      |        |         |        |   |         |         |        
|                                                                                                    | Purchases of equipment and improvements                            |                                                      |         | (7,947 | )      |      |        | (2,360   | )      |   |         | (2,540   | )      
|                                                                                                    | Cash and equivalents acquired in business
	acquisition             |                                                      |         | 16,199 |        |      |        |         |        |   |         |         |        
|                                                                                                    |                                                                    |                                                      |         |        |        |      |        |          |        |   |         |         
|                                                                                                    |                                                                    | Net cash provided by (used in) investing
	activities |         |        | 55,252 |      |        |          | 23,401 |   |         |          | (37,280 | )
|                                                                                                    |                                                                    |                                                      |         |        |        |      |        |          |        |   |         |         
|Cash flows from financing
	activities:                                                              |                                                                    |                                                      |         |        |        |      |        |          |        |   |         |         
|                                                                                                    | Common stock issued upon exercise of options                       |                                                      |         | 11,077 |        |      |        | 601      |        |   |         | 193      |        
|                                                                                                    | Payment of withholding taxes related to stock
	option exercises    |                                                      |         |       |        |      |        | (47      | )      |   |         | (290     | )      
|                                                                                                    | Repurchase of common stock                                         |                                                      |         | (1,703 | )      |      |        |         |        |   |         | (925     | )      
|                                                                                                    | Repurchase of convertible debentures                               |                                                      |         |       |        |      |        | (2,825   | )      |   |         | (9,985   | )      
|                                                                                                    |                                                                    |                                                      |         |        |        |      |        |          |        |   |         |         
|                                                                                                    |                                                                    | Net cash provided by (used in) financing
	activities |         |        | 9,374  |      |        |          | (2,271 | ) |         |          | (11,007 | )
|Effect of exchange rate changes on cash and cash
	equivalents                                       |                                                                    |                                                      | 4       |        |        |      | (46    | )        |        |   | 18      |         
|                                                                                                    |                                                                    |                                                      |         |        |        |      |        |          |        |   |         |         
|Net increase (decrease) in cash and cash
	equivalents                                               |                                                                    |                                                      | 61,490  |        |        |      | 29,818 |          |        |   | (41,608 | )       
|Cash and cash equivalents at beginning of period                                                    |                                                                    |                                                      | 30,236  |        |        |      | 418    |          |        |   | 42,026  |         
|                                                                                                    |                                                                    |                                                      |         |        |        |      |        |          |        |   |         |         
|Cash and cash equivalents at end of period                                                          |                                                                    | $                                                    | 91,726  |        |        | $    | 30,236 |          |        | $ | 418     |         
|                                                                                                    |                                                                    |                                                      |         |        |        |      |        |          |        |   |         |         
|Supplemental disclosure of cash flow
	information:                                                  |                                                                    |                                                      |         |        |        |      |        |          |        |   |         |         
|                                                                                                    | Cash paid for taxes                                                |                                                      | $       | 470    |        |      | $      | 4,691    |        |   | $       | 4,670    |        
|                                                                                                    |                                                                    |                                                      |         |        |        |      |        |          |        |   |         |         
|                                                                                                    | Cash paid for interest                                             |                                                      | $       | 2,604  |        |      | $      | 2,918    |        |   | $       | 3,382    |        
|                                                                                                    |                                                                    |                                                      |         |        |        |      |        |          |        |   |         |         
|Supplemental disclosure of noncash investing
	and financing activities:                             |                                                                    |                                                      |         |        |        |      |        |          |        |   |         |         
|                                                                                                    | Issuance of restricted stock for services                          |                                                      | $       | 4,140  |        |      | $      |         |        |   | $       | 625      |        
|                                                                                                    |                                                                    |                                                      |         |        |        |      |        |          |        |   |         |         
|                                                                                                    | Cash reclassified to restricted cash and cash
	equivalents         |                                                      | $       | 45,884 |        |      | $      |         |        |   | $       |         |        
|                                                                                                    |                                                                    |                                                      |         |        |        |      |        |          |        |   |         |         
|                                                                                                    | Tax benefit related to stock option exercises                      |                                                      | $       | 5,402  |        |      | $      | 319      |        |   | $       |         |        
|                                                                                                    |                                                                    |                                                      |         |        |        |      |        |          |        |   |         |         

See notes to consolidated financial statements

47



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##### Table of Contents



THORATEC CORPORATION AND
SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

1.     Operations and
Significant Accounting Policies

Operations
Thoratec Corporation (the Company) is headquartered
in Pleasanton, California and is a leading manufacturer of
circulatory support products for use by patients with congestive
heart failure. The Company develops, manufactures and markets
products that are used by physicians and hospitals for cardiac
assist, vascular and diagnostic applications. The Company
organizes and manages its business by functional operating
entities, which operate in two business segments:
ventricular-assist products and grafts
(Cardiovascular, formerly known as
VAD/graft) and Other Medical Equipment. The
Companys Cardiovascular segment develops, manufactures and
markets proprietary medical devices used for circulatory support
and vascular graft applications. The Companys Other
Medical Equipment segment develops, manufactures and markets
near-patient, whole-blood coagulation testing equipment and
related disposables, as well as premium quality, single-use skin
incision devices. The Company conducts business both
domestically and internationally. In February 2001, the Company
merged with Thermo Cardiosystems, Inc. (TCA)
(Note 2). Prior to the merger (the Merger), TCA
was a subsidiary of Thermo Electron Corporation (Thermo
Electron).

Fiscal
Year The Company reports
on a 52-53 week fiscal year, which ends on the Saturday
closest to December 31. The fiscal years ended
January 1, 2000, (1999), December 30,
2000, (2000), and December 29, 2001,
(2001), all included 52 weeks.

Principles of
Consolidation The
consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in
consolidation.

Use of
Estimates The preparation
of financial statements in conformity with accounting principles
generally accepted in the United States of America requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.

Major Customers and Concentration of Credit
Risk The Company primarily
sells its products to large hospitals and distributors in the
United States and Europe. For fiscal years 2001, 2000 and 1999,
one distributor customer accounted for 12%, 17% and 21% of total
product sales, respectively. Accounts receivable for this same
distributor customer accounted for 8% and 13% of total accounts
receivable as of the end of 2001 and 2000, respectively. No
other customer accounted for more than 10% of total product
sales in 2001, 2000 or 1999 or had an accounts receivable
balance greater than 10% of total accounts receivable at the end
of 2001 or 2000.

Credit is extended based on an evaluation of a
customers financial condition and generally collateral is
not required. To date, credit losses have not been significant,
however, the Company maintains allowances for potential credit
losses.

Additionally, the Company is potentially subject
to concentrations of credit risk in its investments. To mitigate
this credit risk, the Company invests in high-grade instruments,
which it places with high quality financial institutions.

Certain Risks and
Uncertainties The Company
is subject to certain risks and uncertainties and believes that
changes in any of the following areas could have a material
adverse effect on the Companys future financial position
or results of operations: the ability to achieve or maintain
profitability; the integration of TCA, including the ability to
complete the relocation of its ventricular assist device
(VAD) manufacturing operations from Woburn,
Massachusetts to Pleasanton, California, or any other future
acquisitions; the ability to manage current and future growth;
stock price volatility due to general economic conditions or
future issuances and sales of Company stock; foreign currency
fluctuations; new product development and introduction,
including Food and Drug Administration (FDA)
approval and market receptiveness; the long and

48



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##### Table of Contents



THORATEC CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

variable sales and deployment cycle of the
Companys VAD systems; the ability to protect the
Companys proprietary technologies or an infringement of
others patents; competition from other products; worldwide
demand for circulatory support and graft products and blood
coagulation testing and skin incision devices; product liability
or other claims; the ability to obtain timely deliveries of
parts from suppliers; the reliance on specialized suppliers; the
ability to manufacture products on an efficient and timely basis
and at a reasonable cost and in sufficient volume; the
dependence upon distributors; the ability of third party payors
to provide appropriate levels of reimbursement for the
Companys products; the ability to attract and retain
talented employees; the occurrence of natural catastrophic
disasters; the ability to realize the full value of our
intangible assets; and other risks as detailed from time to time
in the Companys filings with the Securities and Exchange
Commission (SEC).

Cash and Cash
Equivalents Cash and cash
equivalents include cash on deposit of $5,758,000 and money
market securities and municipal government auction bonds of
$85,968,000 in 2001 and commercial paper in 2000 of $29,117,000
with original maturities of three months or less. Cash
equivalents are carried at cost, which approximates market value.

Short-Term Available-For-Sale
Investments The
Companys short-term investments are classified as
available-for-sale and reported at fair market value. Net
unrealized gains and losses are excluded from earnings and
reported as a separate component of shareholders equity.
As of the end of 2000, short-term investments were comprised
primarily of government agency securities and corporate bonds
having maturity of one year or less from the date of investment.

Inventories
Inventories are stated at the lower of first-in, first-out cost
or market.

Property, Plant and
Equipment Property, plant
and equipment are stated at cost. Depreciation is computed using
the straight-line method based on estimated useful lives of 2 to
30 years. Leasehold improvements are amortized over the
lesser of the useful life or the remaining term of the lease.
Property, plant and equipment includes certain medical devices
rented to customers on a short-term or long-term basis.
Amortization expense of all rental equipment included in the
Companys rental program is recognized ratably over
2 to 4 years and is recorded in cost of product sales.

The Company reviews for the impairment of
long-lived assets whenever events or changes in circumstances
indicate that the carrying amount of such assets may not be
recoverable. An impairment loss would be recognized when the sum
of the undiscounted future net cash flows expected to result
from the use of the asset and its eventual disposal is less than
carrying amount.

Capitalized Software
Costs The Company
capitalizes the costs of computer software developed or obtained
for internal use in accordance with Statement of
Position 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use.
Capitalized computer software costs consist of purchased
software licenses, implementation costs and consulting for
certain projects that qualify for capitalization. The Company
expenses costs related to preliminary project assessment,
research and development, re-engineering, training and
application maintenance as incurred. Costs capitalized as of
2001 and 2000 were $2,416,000 and nil, respectively. For each of
2001, 2000 and 1999, no depreciation has been charged, as the
related computer software systems have not yet been placed into
service. The capitalized software costs will be depreciated on a
straight-line method over a period of eight years upon being
placed in service.

Restricted Cash and Cash
Equivalents Upon closing
the Merger with TCA in February 2001, $45,000,000 in cash and
cash equivalents was pledged as collateral for a letter of
credit guarantee to Thermo Electron related to Thermo
Electrons guarantee of the Companys subordinated
debentures (Note 7). Accordingly, these cash and cash
equivalents have been reclassified to restricted cash and cash
equivalents on the Companys 2001 balance sheet. The
balance of these restricted cash and cash equivalents as of
December 29, 2001 was $45,884,000, which includes interest
earnings.

49



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##### Table of Contents



THORATEC CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Purchased Intangible Assets and
Goodwill Purchased
intangible assets are recorded at their fair market value as of
the date of acquisition and amortized on a straight-line basis
over their estimated useful lives of up to 20 years.
Through 2001, goodwill was amortized on a straight-line basis
over its useful life of 20 years. Beginning in 2002,
amortization of goodwill was ceased in accordance with Statement
of Financial Accounting Standards (SFAS)
No. 142, Goodwill and Other Intangible Assets.
Accumulated amortization on purchased intangible assets and
goodwill totaled $15,674,000 and nil at the end of 2001 and
2000, respectively.

Other
Assets Other assets
principally include deposits on the Companys building
leases and interest earned on those deposits, long-term prepaid
software maintenance contracts and patents and trademarks
associated with the Companys Other Medical Equipment
segment. The patents and trademarks are amortized on a
straight-line basis over their estimated useful life of twenty
years. At the end of 2001 and 2000, accumulated amortization of
the patents and trademarks was $324,000 and $287,000,
respectively.

Income
Taxes In accordance SFAS
No. 109, Accounting for Income Taxes, the
Company recognizes deferred income taxes based on the expected
future tax consequences of differences between the financial
statement basis and the tax basis of assets and liabilities,
calculated using enacted tax rates in effect for the year in
which the differences are expected to be reflected in the tax
return.

Fair Value of Financial
Instruments Financial
instruments include cash and cash equivalents, customer
receivables, accounts payable, certain other accrued liabilities
and subordinated convertible debentures. The fair value of the
subordinated convertible debentures was $52,900,000 at
December 29, 2001 and is estimated based on broker
information available to the Company for debentures with similar
terms and maturities. We believe the fair value of the
Companys subordinated debentures is below the carrying
value due primarily to a lack of liquidity in the market for
these types of subordinated debentures and the current price of
the Companys common stock being below the stated
conversation price of the debentures. The carrying amounts of
all other items are a reasonable estimate of their fair values.

Foreign Currency
Translation All assets and
liabilities of the Companys non-United States operations
are translated into United States dollars at period-end exchange
rates, and the resulting translation adjustments are included in
comprehensive income. Income items are translated at actual or
average monthly rates of exchange. Exchange rate fluctuations
resulting from the period-end translation of the current portion
of the intercompany obligation of the Companys
wholly-owned subsidiary into United States dollars are recorded
in the statements of operations as foreign currency translation
gains or losses and are included in interest and other
income-net.

Repurchases of Common
Stock On April 12,
2001 the Companys board of directors authorized a stock
repurchase program under which up to $20,000,000 of the
Companys common stock may be acquired in the open market
or in privately negotiated transactions. The number of shares to
be purchased and the timing of purchases is based on several
conditions, including the price of Thoratec stock, general
market conditions and other factors. For each share repurchased,
the Company reduces the common stock account by the average
value per share reflected in the account prior to the repurchase
with the excess allocated to retained earnings. The Company
retires all shares repurchased.

Revenue Recognition and Product
Warranty The Company
recognizes revenue from product sales provided persuasive
evidence of an arrangement exists, title has passed (generally
upon shipment) or services have been rendered, the selling price
is fixed or determinable and collectibility is reasonably
assured. Estimated contractual warranty obligations are recorded
when related sales are recognized. Sales to distributors are
recorded when title transfers upon shipment. One distributor has
certain limited product return rights. A limited number of other
distributors have certain rights of return upon termination of
their distribution agreement. A reserve for sales returns is
recorded for these customers applying reasonable estimates of
product returns based upon significant historical experience in
accordance with SFAS

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THORATEC CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

No. 48, Revenue Recognition when Right
of Return Exists. No other direct sales customers or
distributors have return rights or price protection.

Sales of certain Cardiovascular segment products
to first-time customers are recognized when it has been
determined that the customer has the ability to use such
products. These sales frequently include the sale of products
and training services under multiple element arrangements. For
most customers, training is not essential to the functionality
of the products as the customers already possess sufficient
expertise and experience to use the products. In these
situations, training is provided as a best practice to optimize
the use and success of the products. The amount of revenues
under these arrangements allocated to training is based upon
fair market value of the training, performed principally by
third party providers. The amount of revenues allocated to the
Cardiovascular segment products is done on a residual method
basis. Under this method, the total value of the arrangement is
allocated first to the undelivered training element based on the
fair market value, with the remainder being allocated to the
Cardiovascular segment products. The amount of revenues
allocated to training is recorded as deferred revenue and is
recognized when the training is completed. As of the end of
2001, $1,093,000 of products have been delivered and recorded as
product sales for customers that were determined to be able to
use those products, but for which training had not yet been
completed. The amount of revenue deferred related to this
training not yet completed was $38,000 at the end of 2001. As of
the end of 2000 and 1999, all training related to product sales
had been completed.

The Company also rents certain medical devices to
customers on a month-to-month or as-used basis. Rental income is
based on utilization and is included in product sales as earned.
Included in product sales for 2001, 2000 and 1999 are
$3,456,000, $2,724,000 and $1,958,000, respectively, of income
earned from the rental of these medical devices.

Revenues and profits on long-term research and
development contracts are recognized using the
percentage-of-completion method and recorded as interest and
other income  net. Revenues recorded under the
percentage-of-completion method were nil, $306,000 and $479,000
in 2001, 2000 and 1999, respectively. The
percentage-of-completion is determined by relating the actual
costs incurred to date to managements estimate of total
costs to be incurred on each contract. If a loss is indicated on
any contract in process, a provision is made currently for the
entire loss. Contracts generally provide for the billing of
customers on a cost-plus-fixed-fee basis as costs are incurred.

Accounting for Stock-Based
Compensation The Company
accounts for stock-based awards to employees using the intrinsic
value method in accordance with Accounting Principals Board
Opinion No. 25, Accounting for Stock Issued to
Employees. Proforma disclosures of net earnings and
earnings per share consistent with the method of SFAS
No. 123, Accounting for Stock-Based
Compensation are included in Note 9.

Earnings (Loss) Per
Share Basic earnings
(loss) per share is computed by dividing net income (loss)
by the weighted average number of common shares outstanding
during the period. Diluted earnings (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. Diluted loss per share for 2001 excludes any
effect from such securities as their inclusion would be
antidilutive (see Note 16). Therefore, diluted loss per
share is the same as basic loss per share for 2001.

Comprehensive Income
(Loss) Comprehensive
income (loss) includes net income (loss) and is defined as the
change in net assets during the period from non-owner sources,
including unrealized gains and losses on investments and foreign
currency translation adjustments.

Recently Issued Accounting
Standards The Company
adopted SFAS No. 133, Accounting for Derivative
Instruments and for Hedging Activities, in the first
quarter of fiscal 2001. SFAS No. 133, as amended, requires
the Company to recognize all derivative instruments on the
balance sheet at fair value. The gains or losses resulting from
changes in the fair value of derivative instruments are
recognized in current

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THORATEC CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

earnings. The Companys adoption of SFAS
No. 133, as amended, did not have any impact on its
consolidated financial position, results of operations or cash
flows.

In June 2001, the Financial Accounting Standards
Board (FASB) approved SFAS No. 141,
Business Combinations, and SFAS No. 142,
Goodwill and Other Intangible Assets. SFAS
No. 141 prohibits the pooling of interests method of
accounting for business combinations initiated after
June 30, 2001. SFAS No. 142, which is effective for
fiscal years beginning after December 15, 2001, requires
companies to cease amortizing goodwill that existed at
June 30, 2001 and establishes a new method of testing
goodwill and intangibles for impairment. The Company has adopted
SFAS No. 141 and 142 effective the beginning of 2002 and
expects that the adoption of SFAS No. 142 will result in a
decrease in goodwill amortization of $5,000,000 in 2002.
Amortization of goodwill was $4,353,000 for the year ended
December 29, 2001. Amortization of purchased intangibles
was $11,321,000 for the year ended December 29, 2001.

To test goodwill for impairment under the new
standard, the Company will establish reporting units to which
assets, liabilities and goodwill will be allocated. Goodwill
will be tested for impairment on an annual basis or on an
interim basis if an event occurs or circumstances change that
could reduce the fair value of the reporting unit below its
carrying amount. Impairment tests will be performed using the
lower of cost or market, purchase price allocation two-step
approach. The first step requires comparison of the fair value
of the reporting unit to its carrying amount. If the fair value
of a reporting unit is less than its carrying amount, the second
step is performed which requires allocation of the fair value of
the reporting unit to the assets, liabilities and goodwill of
that unit as if the unit had been acquired in a business
combination and the fair value of the reporting unit determined
in step 1 was the price paid to acquire the reporting unit.
Goodwill is considered to be impaired to the extent that the
amount allocated to goodwill in the hypothetical purchase price
allocation is below the carrying amount of the goodwill. If an
impairment occurs it will be included in income from operations.

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

In October 2000, the FASB approved SFAS
No. 144, Accounting for the Impairment of Long-Lived
Assets. This Statement addresses financial accounting and
reporting for the impairment or disposal of long-lived assets.
This Statement supersedes FASB Statement No. 121,
Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of, and the accounting
and reporting provisions of Accounting Principles Board
(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, for
the disposal of a segment of a business (as previously defined
in that Opinion). This Statement also amends Accounting Research
Board No. 51, Consolidated Financial
Statements, to eliminate the exception to consolidation
for a subsidiary for which control is likely to be temporary.
The Company will adopt this Standard at the beginning of fiscal
year 2002. The Company does not expect the adoption of SFAS
No. 144 to have a material impact on its financial
position, results of operations or cash flows.

Presentation
Certain 2000 and 1999 amounts have been reclassified to conform
to the presentation in the 2001 financial statements.

2.     Merger of
Thoratec and TCA

On February 14, 2001, Thoratec completed its
Merger with TCA. Pursuant to the Merger agreement between
Thoratec and TCA dated October 3, 2000, Thoratec issued
32,226,074 new shares of its common

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THORATEC CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

stock to the shareholders of TCA in exchange for
all the outstanding common stock of TCA (38,594,281 shares
outstanding as of February 14, 2001) at an exchange ratio
of 0.835 shares of Thoratec stock for each share of TCA
stock. Immediately following the transaction, TCAs
shareholders owned 59% of the then outstanding common stock of
Thoratec and the former Thoratec shareholders owned the
remaining shares of Thoratec common stock. Thermo Electron, the
majority shareholder of TCA prior to the Merger, received
19,312,959 shares of the 32,226,074 newly issued shares.
Immediately following the Merger, Thermo Electron owned 35% of
the then outstanding common stock of Thoratec. Pursuant to the
terms of a Registration Rights Agreement between the Company and
Thermo Electron dated October 3, 2000 (Registration
Rights Agreement), the Company filed a Registration
Statement on Form S-3 with the SEC, which became effective
on June 15, 2001, to register for resale 4,828,240 shares
of the Companys common stock held by Thermo Electron.
Subsequent to that filing, Thermo Electron sold substantially
all of the 4,828,240 registered shares. The Company filed
another Registration Statement on Form S-3 with the SEC to
register 1,055,000 newly issued shares of its common stock and
to register for resale 5,945,000 shares of the Companys
common stock held by selling shareholders, of which 5,825,000
shares were held by Thermo Electron. This registration statement
became effective on February 12, 2002 and all shares
registered were subsequently sold. The Company received
$16,120,000, net of underwriting fees and discounts, but before
other expenses of the offering, from the sale of the 1,055,000
newly issued shares. In addition, the underwriters exercised a
30-day option to purchase from Thermo Electron 1,050,000
additional shares of the Companys common stock to cover
any over-allotments. The Company received no proceeds from the
sale of shares by selling shareholders or from the sale of the
over-allotment shares. Subsequent to the sale of these shares,
Thermo Electron owned approximately 14% of the Companys
total outstanding common stock.

The Merger was accounted for under the purchase
method of accounting and was treated as a reverse acquisition
because the shareholders of TCA owned the majority of Thoratec
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 values at the date of
acquisition. The consolidated financial information for 2000 and
1999 includes the results of operations of TCA. The operating
results of Thoratec have been included in the accompanying
consolidated financial statements from the date of acquisition
forward. All reported amounts of outstanding common shares and
common share equivalents (stock options and convertible
debentures) prior to the Merger have been adjusted to reflect
the exchange ratio of 0.835 to 1. As of December 29,
2001, approximately $309,076,000 of the total purchase price of
$346,193,000 has been allocated to goodwill and other purchased
intangible assets.

As a result of the Merger, $76,858,000 relating
to in-process research and development (IPR&D)
was expensed in the first quarter of 2001. The write-off of
IPR&D related to projects that were in development, had not
reached technological feasibility, had no alternative future use
and for which successful development was uncertain. There have
been no significant developments subsequent to the Merger
related to the current status of any of the 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
regulatory and technical nature of the Companys products,
current estimates remain materially consistent with the
Companys initial estimates.

The current status of each IPR&D project
follows:

Thoratec VAD
(Discharge and Therapeutic Recovery)

The Company continues to participate in various
studies designed to demonstrate the Thoratec VADs role to
provide ventricular assistance in patients after they have been
discharged from the hospital and as a support to recovery of the
heart from open-heart surgery, acute cardiac failure and various
infections of the heart muscle. Cost projections for this
project are consistent with initial estimates. At the time of
the Merger, the estimated cost to complete the studies was
approximately $2.3 million. The Company hopes to complete
these studies and obtain approval from the FDA in 2002.

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THORATEC CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

TLC-II
Driver

The TLC-II Driver received FDA approval in 2001.

IVAD

Conditional approval to start IVAD clinical
trials in the U.S. has been received from the FDA and cost
projections are consistent with initial estimates. At the time
of the Merger, the estimated cost to complete this project was
approximately $2.5 million. The Company hopes that the IVAD
will be approved by the FDA in 2003.

Aria
Graft

Clinical trials for the Aria graft are ongoing
and cost projections are consistent with initial estimates. At
the time of the Merger, the estimated cost to complete the Aria
graft was approximately $4.7 million. The Company hopes
that the Aria graft will be completed and approved by the FDA in
2004.

There can be no assurances that the Company will
be able to complete the development of these products on a
timely basis. Failure to complete these projects could have an
adverse impact on the Companys financial condition or
results of operations.

In connection with the Merger, five-year warrants
to purchase 164,400 shares of Thoratec stock issued in 1996 were
canceled pursuant to the original terms of the warrants.

The fair value of Thoratecs net assets have
been estimated for purposes of allocating the purchase price.
The purchase price and allocation of purchase price as of
December 29, 2001 are summarized as follows (in thousands):

|                              |                                                                                                                          |                                                                                   |   |         |         | 
|----------------------------- | ------------------------------------------------------------------------------------------------------------------------ | --------------------------------------------------------------------------------- | - | ------- | ------- | 
|Purchase price:               |                                                                                                                          |                                                                                   |   |        
|                              | Common stock                                                                                                             |                                                                                   | $ | 306,889 |        
|                              | Stock options                                                                                                            |                                                                                   |   | 33,524  |        
|                              | Transaction costs                                                                                                        |                                                                                   |   | 5,780   |        
|                              |                                                                                                                          |                                                                                   |   |        
|                              |                                                                                                                          | Total purchase price                                                              |   | $       | 346,193 | 
|                              |                                                                                                                          |                                                                                   |   |        
|Allocation of purchase price: |                                                                                                                          |                                                                                   |   |        
|                              | Tangible assets acquired (primarily cash and cash
	equivalents, receivables, inventory, and equipment and
	improvements) |                                                                                   | $ | 41,018  |        
|                              | Fair market valuation of property lease                                                                                  |                                                                                   |   | 2,285   |        
|                              | Deferred tax asset                                                                                                       |                                                                                   |   | 4,332   |        
|                              | Deferred compensation                                                                                                    |                                                                                   |   | 841     |        
|                              | Intangible net assets acquired:                                                                                          |                                                                                   |   |         |        
|                              |                                                                                                                          | Patents, trademarks and tradenames, purchased
	technology and assembled workforce |   |         | 209,572 | 
|                              |                                                                                                                          | Goodwill                                                                          |   |         | 99,504  | 
|                              | In-process research and development                                                                                      |                                                                                   |   | 76,858  |        
|                              | Liabilities assumed                                                                                                      |                                                                                   |   | (10,824 | )      
|                              | Deferred tax liability                                                                                                   |                                                                                   |   | (77,393 | )      
|                              |                                                                                                                          |                                                                                   |   |        
|                              |                                                                                                                          | Total                                                                             |   | $       | 346,193 | 
|                              |                                                                                                                          |                                                                                   |   |        

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THORATEC CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The unaudited consolidated results of operations
on a pro forma basis as if the Merger had occurred as of the
beginning of the periods presented are as follows (in thousands):

|                                       |  |             |         |      |  |      |         |   |  |   |         |  
|-------------------------------------- |  | ----------- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                       |  |            
|                                       |  | Fiscal Year
|                                       |  |            
|                                       |  | 2001        |         | 2000 |  | 1999
|                                       |  |             |         |      |  |     
|Revenue                                |  | $           | 116,908 |      |  | $    | 113,825 |   |  | $ | 101,119 |  
|Net loss(a)                            |  | $           | (90,902 | )    |  | $    | (8,341  | ) |  | $ | (4,438  | )
|Net loss per share  basic and diluted |  | $           | (1.65   | )    |  | $    | (0.15   | ) |  | $ | (0.08   | )



---



|    |                                                                                                                                                                                                                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Included in 2001 and 2000 are $7,753,000 and
	$6,000,000 of merger and restructuring costs, respectively (Note
	15). Included in each of 2001, 2000 and 1999 is $17,877,000 of
	amortization of goodwill and purchased intangibles. Included in
	2001 only is $76,858,000 of write-off of in-process research and
	development.

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

At the time of the Merger, the Company recorded a
liability for the estimated costs associated with evaluating and
restructuring its product distribution networks. Negotiations
with the distributors were ongoing throughout 2001 and
adjustments to the estimated distributor contract restructuring
costs have been reflected as adjustments to the purchase price
allocation.

3.     Investments



| |                                           
| | ------------------------------------------
| | Short-Term Available-For-Sale
	Investments

The Companys short-term investments are
considered available-for-sale investments in the accompanying
balance sheet and are carried at fair value with the difference
between cost and fair value, net of related tax effects,
recorded in the accumulated other comprehensive items component
of the consolidated statements of shareholders equity. The
Company classifies investments that mature in less than one year
of purchase date as short-term investments. The accompanying
2000 balance sheet includes $98,237,000 with contractual
maturities of one year or less and $445,000 with contractual
maturities of more than five years through ten years. Actual
maturities may differ from contractual maturities as a result of
the Companys intent to sell these securities prior to
maturity.

The aggregate market value, cost basis and gross
unrealized gains and losses of short-term available-for-sale
investments for 2000 by major security type are as follows (in
thousands):

|                             |  |           |        |            |  |            |    |       |  |   |      |   |  |   |        | 
|---------------------------- |  | --------- | ------ | ---------- |  | ---------- | -- | ----- |  | - | ---- | - |  | - | ------ | 
|                             |  |           |        | Gross      |  | Gross      |    |      
|                             |  | Amortized |        | Unrealized |  | Unrealized |    | Fair 
|                             |  | Cost      |        | Gains      |  | Losses     |    | Value
|                             |  |           |        |            |  |            |    |      
|Fiscal 2000                  |  |           |        |            |  |            |    |       |  |   |      |   |  |   |        | 
|Government-agency securities |  | $         | 92,724 |            |  | $          | 18 |       |  | $ | (98  | ) |  | $ | 92,644 | 
|Corporate bonds              |  |           | 4,989  |            |  |            | 2  |       |  |   |     |   |  |   | 4,991  | 
|Other                        |  |           | 1,030  |            |  |            | 62 |       |  |   | (45  | ) |  |   | 1,047  | 
|                             |  |           |        |            |  |            |    |       |  |   |      |   |  |   |        | 
|                             |  | $         | 98,743 |            |  | $          | 82 |       |  | $ | (143 | ) |  | $ | 98,682 | 
|                             |  |           |        |            |  |            |    |       |  |   |      |   |  |   |        | 

The cost of available-for-sale investments that
were sold was based on specific identification in determining
realized gains and losses recorded in the accompany statement of
income. Gains and losses on sale of investments resulted in a
realized gain of $3,000 in 2000 relating to the sale of
available-for-sale investments.

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THORATEC CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

4.     Inventories

Inventories consist of the following (in
thousands):

|                |       |             |        |        |  |   |        |        | 
|--------------- | ----- | ----------- | ------ | ------ |  | - | ------ | ------ | 
|                |       |            
|                |       | Fiscal Year
|                |       |            
|                |       | 2001        |        | 2000  
|                |       |             |        |       
|Finished goods  |       | $           | 15,276 |        |  | $ | 3,177  |       
|Work-in-process |       |             | 4,322  |        |  |   | 10,261 |       
|Raw materials   |       |             | 6,075  |        |  |   | 3,943  |       
|                |       |             |        |        |  |   |        |       
|                | Total |             | $      | 25,673 |  |   | $      | 17,381 | 
|                |       |             |        |        |  |   |        |       

5.     Property,
Plant and Equipment

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

|                                          |       |             |         |        |  |   |         |        | 
|----------------------------------------- | ----- | ----------- | ------- | ------ |  | - | ------- | ------ | 
|                                          |       |            
|                                          |       | Fiscal Year
|                                          |       |            
|                                          |       | 2001        |         | 2000  
|                                          |       |             |         |       
|Land                                      |       | $           | 341     |        |  | $ | 341     |       
|Building                                  |       |             | 2,445   |        |  |   | 2,445   |       
|Building lease                            |       |             | 2,285   |        |  |   |        |       
|Equipment                                 |       |             | 20,409  |        |  |   | 17,518  |       
|Rental drivers                            |       |             | 4,653   |        |  |   | 1,762   |       
|Leasehold improvements                    |       |             | 7,360   |        |  |   | 1,162   |       
|Construction in progress                  |       |             | 4,057   |        |  |   | 539     |       
|                                          |       |             |         |        |  |   |         |       
|                                          | Total |             |         | 41,550 |  |   |         | 23,767 | 
|Accumulated depreciation and amortization |       |             | (18,905 | )      |  |   | (16,683 | )     
|                                          |       |             |         |        |  |   |         |       
|                                          |       | $           | 22,645  |        |  | $ | 7,084   |       
|                                          |       |             |         |        |  |   |         |       

Included in construction in progress for 2001 was
$2,416,000 related to the purchase of a new Enterprise Resource
Planning System.

6.     Leases

The Company leases manufacturing, office,
research facilities, and equipment under various operating lease
agreements. Future minimum lease payments as of the end of 2001
are noted below (in thousands):

|             |  |   |        | 
|------------ |  | - | ------ | 
|Fiscal year: |  |   |        | 
|2002         |  | $ | 1,677  | 
|2003         |  |   | 1,550  | 
|2004         |  |   | 1,326  | 
|2005         |  |   | 1,229  | 
|2006         |  |   | 1,227  | 
|Thereafter   |  |   | 9,655  | 
|             |  |   |        | 
|Total        |  | $ | 16,664 | 
|             |  |   |        | 

Rent expense for all operating leases was
$1,778,000 in 2001, $623,000 in 2000 and $481,000 in 1999.

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THORATEC CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

7.     Subordinated
Convertible Debentures

In May 1997, the Company issued $70,000,000 worth
of 4.75% subordinated convertible debentures due May 2004.
Interest is payable semi-annually in November and May of each
year. The outstanding debentures are convertible into Company
stock at a price of $37.62 per share. To date, no debentures
have been exchanged for shares. At the issuance date, $1,972,000
in costs related to the issuance of the debentures was
capitalized and is being amortized to interest expense over the
life of the debentures.

As of December 29, 2001, the outstanding
principal balance of the debentures is $54,838,000 reflecting
repurchases in the open market from time to time. During 2001
there were no such repurchases. During 2000, the Company
purchased $3,173,000 principal amount of the debentures for
$2,825,000 in cash, resulting in an extraordinary gain of
$191,000, net of taxes of $117,000.

Upon closing the Merger with TCA in February
2001, $45,000,000 in cash and cash equivalents was pledged as
collateral for a letter of credit guarantee to Thermo Electron
Corporation related to Thermo Electrons guarantee of the
Companys subordinated debentures. This letter of credit is
fully collateralized with restricted cash and cash equivalents
of $45,884,000 as of December 29, 2001.

On January 23, 2002, the Company announced a
plan to redeem all of the outstanding subordinated debentures at
par plus accrued interest. The redemption was completed on
March 11, 2002 using restricted cash and cash equivalents
of $45,884,000 and cash of $9,793,000. An extraordinary loss
will be recorded in the first quarter of 2002 related to the
write-off of capitalized debt issuance costs associated with the
initial issuance of the debentures, which were being amortized
over the life of the debentures. As of December 29, 2001,
the remaining balance of capitalized debt issuance costs was
$530,000. As a result of the redemption, the letter of credit
guarantee to Thermo Electron was extinguished.

8.     Common and
Preferred Stock and Warrants

The Company has authorized 100,000,000 no par
common shares, and 2,500,000 shares of preferred stock, of which
540,541 shares have been designated Series A and 500,000
shares designated Series B.

The Series A preferred stock is entitled to
cumulative annual dividends of $1.30 per share and has a
liquidation preference of $9.25 per share plus cumulative unpaid
dividends. The Company may redeem the Series A preferred
stock at any time for its liquidation preference. Each share of
preferred stock is convertible into one-third of a share of
common stock, after adjusting for earned but unpaid dividends.
At December 29, 2001, no shares of Series A preferred
stock were outstanding.

The Series B preferred stock is senior to
the Series A in all preferences. Series B is entitled
to cumulative annual dividends of $0.96 per share and has a
liquidation preference of $8.00 per share plus cumulative unpaid
dividends. The Series B preferred stock is redeemable by
the company five years after its issuance for $8.00 per share
plus cumulative unpaid dividends. Each share of Series B
preferred stock is convertible at any time into three and
one-third shares of common stock and has certain anti-dilution
provisions. Series B preferred vote on an as-converted
basis. At December 29, 2001, no shares of Series B
preferred stock were outstanding.

The Company filed a Registration Statement on
Form S-3 with the SEC to register for sale 1,055,000 newly
issued shares of the Companys common stock and 5,945,000
shares held by selling shareholders, of which 5,825,000 shares
were held by Thermo Electron. This Registration Statement became
effective February 12, 2002, and all of the registered
shares were subsequently sold. The Company received
$16.1 million, net of underwriting discounts and fees, but
before other expenses of the offering, from the sale of the
1,055,000 newly issued shares. In addition, the underwriters
exercised a 30-day option to purchase from Thermo Electron
1,050,000 shares of common stock to cover any over-allotments.
The Company received no proceeds from the sale of these
over-allotment shares.

57



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THORATEC CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In 2001, an award of 250,000 shares of restricted
common stock was made to a Company executive under the
Companys 1997 Stock Option Plan. The stock award was
valued at $4,140,000 and recorded as deferred compensation to be
amortized to expense over the restriction lapse period. As of
December 29, 2001, none of the restrictions have lapsed for
shares issued under this award.

9.     Stock-Based
Compensation

Historically, TCA had a variety of stock-based
compensation plans for employees and directors that allowed the
granting of options, stock, and stock-based awards. There were
no grants under any of TCAs plans during 2001. Pursuant to
the terms of the Thoratec and TCA Merger agreement, all TCA
stock-based compensation plans were assumed by Thoratec
effective February 14, 2001. Moreover, all outstanding
options and restrictions on past TCA grants were accelerated and
became fully vested as of the Merger date of February 14,
2001 and were converted to 971,222 Thoratec common stock options
at the Merger conversion ratio of 0.835 to 1. Although
assumed by Thoratec, the TCA stock options remain exercisable
upon the same terms and conditions as under the TCA stock option
plan pursuant to which it was granted and the applicable option
agreement.

TCAs prior stock option plans are
summarized below:

Prior to the Merger, TCA maintained stock-based
compensation plans for its key employees, directors and others.
Two of these plans permitted the granting of non-qualified and
incentive stock options. Two other plans permitted the granting
of a variety of stock and stock-based awards as determined by
the human resources committee of TCAs Board of Directors
(the Board Committee). Generally, options granted under these
plans were exercisable immediately, but were subject to certain
transfer restrictions and the right of TCA to repurchase shares
issued upon exercise of the options at the exercise price, upon
certain events. The restrictions and repurchase rights generally
lapsed ratably over a one- to ten-year period, depending on the
term of the option, which ranged from five to twelve years.
Nonqualified options were granted at any price determined by the
Board Committee, although incentive stock options were granted
at not less than the fair market value of the TCAs stock
on the date of grant. TCA also had a directors stock
option plan that provided for the grant of stock options to
outside directors pursuant to a formula approved by TCAs
shareholders. Options awarded under this plan were exercisable
six months after the date of the grant and expired three or
seven years after the date of the grant. In addition to
TCAs stock-based compensation plans, certain officers and
key employees also participated in the stock-based compensation
plans of Thermo Electron and Thermedics, a subsidiary of Thermo
Electron at the time.

In June 1999, TCA awarded 67,000 shares of its
restricted common stock to certain key employees. The shares had
an aggregate value of $625,000 and vest three years from the
date of award, assuming continued employment, with certain
exceptions. TCA recorded the fair value of the restricted stock
as deferred compensation in 1999 and was amortizing such amount
over the vesting period. At the time of the Merger in February
2001, all options became fully vested, all restrictions on the
restricted stock awards lapsed and all unamortized deferred
compensation was expensed.

Substantially all of TCAs full-time
employees were eligible to participate in an employee stock
purchase plan program sponsored by TCA and Thermo Electron.
Under this program, shares of TCAs and Thermo
Electrons common stock were able to be purchased at 85% of
the lower of the fair market value at the beginning or end of
the period, and shares purchased were subject to a one-year
resale restriction. Shares were purchased through payroll
deductions of up to 10% of each participating employees
gross wages. During 2000 and 1999, TCA issued 17,800 and 9,100
shares, respectively, of its common stock under this program.
The employee stock purchase plan was canceled effective November
2000.

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THORATEC CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The stock-based compensation plans placed in
effect after the Merger and post-merger activity under these
plans are summarized as follows:

In 1993, the Directors approved the 1993 Stock
Option Plan (1993 SOP), which permits the
Company to grant options to purchase up to 666,667 shares of
common stock. No options were granted under this plan in 2001.

In 1996, the Directors adopted the 1996 Stock
Option Plan (1996 SOP) and the 1996
Non-employee Directors Stock Option Plan (Directors Option
Plan). The 1996 SOP consists of two parts. Part One
permits the Company to grant options to purchase up to 500,000
shares of common stock. During 2001 no options were granted at
fair market value under Part One of the 1996 SOP. Part Two
related to the Chief Executive Officer (CEO) and
permitted the Company to grant non-qualified options to the CEO
to purchase up to 333,333 shares of common stock. During 1996,
333,333 options were granted at fair market value under Part Two
of the 1996 SOP. The Directors Option Plan was amended by
approval by a vote of the Companys shareholders in May
1999 for all option grants going forward. The amendments include
increasing the number of shares granted to the Board of
Directors in the initial grants from 10,000 to 15,000 shares
(granted in four equal installments, once when elected to the
Board then quarterly thereafter), and the annual grants from
5,000 to 7,500 shares (granted in four equal installments after
re-election). Provisions were also made for immediate vesting of
both initial and annual grants, and for changing the term of the
options from ten to five years. In addition, the number of
shares reserved for issuance under the Directors Option Plan was
increased from 150,000 to 350,000 and the plan administrator has
been provided with the discretion to impose any repurchase
rights in favor of the Company on any optionee. The Company
currently has seven non-employee directors, six of whom are
eligible to participate in the Directors Option Plan. During
2001 45,000 options were granted at fair market value under the
Directors Option Plan.

In 1997, the Directors adopted the 1997 Stock
Option Plan (1997 SOP). The 1997 SOP was
amended by approval of a vote of the Companys shareholders
in February 2001 and amended again by the Board of Directors in
December 2001. During 2001, 3,863,112 options were granted at
fair market value under this plan. As of December 30, 2000,
prior to the February amendment, 365,091 options remained
available for grant under this plan. The amendment increased the
number of shares of the Companys common stock reserved for
issuance of options and share awards granted under this plan by
6,400,000. This increase was to enable the Company to assume the
options to purchase shares of TCA common stock that were
outstanding upon the closure of the Merger and exchange them for
options to purchase Thoratec common stock, as well as to grant
additional shares over time after the Merger to an expanded
employee base.

Including the 1993 SOP, the 1996 SOP, the
Directors Option Plan, the 1997 SOP, and several older plans,
the Company had seven common stock option plans with options
still outstanding at December 29, 2001. Options may be
granted by the Board of Directors at the fair market value on
the date of grant. Options generally become exercisable within
five years of grant and expire between five and ten years from
the date of grant. At December 29, 2001, options to
purchase 3,349,916 common shares remain available for grant
under all the plans.

Agreements have been entered into with selected
consultants whereby options to purchase the Companys
common stock were accepted by these consultants as full or
partial payment for the services rendered to the Company. The
fair market value of the consulting services is the basis for
recording the transaction in the Companys financial
records and is recognized as the related services are performed.
No options were issued under these agreements in 2001.

The Company applies APB Opinion 25 and related
Interpretations in accounting for its employee stock-based
compensation plans. 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 credited to equity. If compensation cost
for the Companys stock-based plans had been determined
based on the fair

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THORATEC CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

value at the grant dates for awards under those
plans, consistent with the method of FASB Statement 123,
the Companys reported net income (loss) would have been
adversely affected, as shown by the pro forma amounts indicated
in the following table (in thousands, except per share data):

|                                             |             |             |   |         |   |      |   |        |  |  |   |       | 
|-------------------------------------------- | ----------- | ----------- | - | ------- | - | ---- | - | ------ |  |  | - | ----- | 
|                                             |             |            
|                                             |             | Fiscal Year
|                                             |             |            
|                                             |             | 2001        |   | 2000    |   | 1999
|                                             |             |             |   |         |   |     
|Net income (loss):                           |             |             |   |         |   |      |   |        |  |  |   |      
|                                             | As reported |             | $ | (87,866 | ) |      | $ | 7,524  |  |  | $ | 9,584 | 
|                                             | Pro forma   |             | $ | (96,475 | ) |      | $ | 16,187 |  |  | $ | 7,209 | 
|Basic and diluted earnings (loss) per share: |             |             |   |         |   |      |   |        |  |  |   |      
|                                             | As reported |             | $ | (1.68   | ) |      | $ | 0.23   |  |  | $ | 0.30  | 
|                                             | Pro forma   |             | $ | (1.84   | ) |      | $ | 0.19   |  |  | $ | 0.22  | 

The fair value of each option granted is
estimated at the date of grant using the Black-Scholes
option-pricing model with the following assumptions used for
grants made:

|                        |  |             |            |      |  |      |           |  |  |  |           | 
|----------------------- |  | ----------- | ---------- | ---- |  | ---- | --------- |  |  |  | --------- | 
|                        |  |            
|                        |  | Fiscal Year
|                        |  |            
|                        |  | 2001        |            | 2000 |  | 1999
|                        |  |             |            |      |  |     
|Risk-free interest rate |  |             | 5.08%      |      |  |      | 4.90%     |  |  |  | 5.60%     | 
|Expected volatility     |  |             | 71%        |      |  |      | 61%       |  |  |  | 54%       | 
|Expected option life    |  |             | 2.85 years |      |  |      | 4.8 years |  |  |  | 3.1 years | 
|Dividends               |  |             | None       |      |  |      | None      |  |  |  | None      | 

Stock option activity is summarized as follows
(in thousands, except per share data):

|                                                       |                                                                |                                                                 |        |                |       |  |       |       |       | 
|------------------------------------------------------ | -------------------------------------------------------------- | --------------------------------------------------------------- | ------ | -------------- | ----- |  | ----- | ----- | ----- | 
|                                                       |                                                                |                                                                 |        | Weighted      
|                                                       |                                                                | Number of                                                       |        | Average       
|                                                       |                                                                | Options                                                         |        | Exercise Price
|                                                       |                                                                |                                                                 |        |               
|Outstanding at fiscal year end 1998                    |                                                                |                                                                 |        |                |       |  |       |      
|                                                       |                                                                | (1,222 exercisable at $16.72 weighted average
	price per share) |        |                | 1,226 |  |       | $     | 16.75 | 
|Granted ($4.56 weighted average fair value per
	share) |                                                                |                                                                 | 100    |                |       |  | 11.39 |      
|Cancelled & Expired                                    |                                                                |                                                                 | (96    | )              |       |  | 20.25 |      
|Exercised                                              |                                                                |                                                                 | (57    | )              |       |  | 5.40  |      
|                                                       |                                                                |                                                                 |        |                |       |  |       |      
|Outstanding at fiscal year end 1999                    |                                                                |                                                                 |        |                |       |  |       |      
|                                                       |                                                                | (1,173 exercisable at $16.55 weighted average
	price per share) |        |                | 1,173 |  |       |       | 16.55 | 
|Granted ($6.40 weighted average fair value per
	share) |                                                                |                                                                 | 45     |                |       |  | 11.65 |      
|Cancelled & Expired                                    |                                                                |                                                                 | (208   | )              |       |  | 20.67 |      
|Exercised                                              |                                                                |                                                                 | (33    | )              |       |  | 8.30  |      
|                                                       |                                                                |                                                                 |        |                |       |  |       |      
|Outstanding at fiscal year end 2000                    |                                                                |                                                                 |        |                |       |  |       |      
|                                                       |                                                                | (977 exercisable at $15.72 weighted average price
	per share)   |        |                | 977   |  |       |       | 15.72 | 
|Granted ($5.22 weighted average fair value per
	share) |                                                                |                                                                 | 2,817  |                |       |  | 11.02 |      
|Cancelled & Expired                                    |                                                                |                                                                 | (527   | )              |       |  | 12.35 |      
|Exercised                                              |                                                                |                                                                 | (1,378 | )              |       |  | 8.04  |      
|Options assumed during Merger                          |                                                                |                                                                 | 3,696  |                |       |  | 8.09  |      
|                                                       |                                                                |                                                                 |        |                |       |  |       |      
|Outstanding at fiscal year end 2001                    |                                                                |                                                                 |        |                |       |  |       |      
|                                                       | (2,615 exercisable at $9.99 weighted average
	price per share) |                                                                 |        | 5,585          |       |  | $     | 10.51 |      
|                                                       |                                                                |                                                                 |        |                |       |  |       |      

60



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THORATEC CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In conjunction with the Merger, 887,621 options
of the 3,696,000 Thoratec options assumed as a result of the
Merger became fully vested pursuant to existing change of
control agreements at the close of the Merger on
February 14, 2001. This acceleration of vesting was
provided in the terms of the original Thoratec grants. Of the
887,621 options that accelerated, waiver agreements involving
options to purchase 868,750 shares were entered into whereby
certain executive option holders agreed not to sell or transfer
any of their shares for a period of up to 18 months and to
remain employed at the Company for a period of 12 months
after the effective date of the Merger. In exchange, the options
holders received a cash payment on the one-year anniversary of
the Merger.

In addition, all options to purchase TCA shares
that were outstanding at the date of the Merger were exchanged
for options to purchase 971,222 Thoratec shares and became fully
vested as of the Merger date. This acceleration of vesting was
provided for in the terms of the underlying TCA grants.

The status of options outstanding as of the end
of 2001 is summarized as follows:

|         |                 |                     |  |                     |           |          |  |             |      |          |  |   |       |  |  |  |           |  |  |   |       | 
|-------- | --------------- | ------------------- |  | ------------------- | --------- | -------- |  | ----------- | ---- | -------- |  | - | ----- |  |  |  | --------- |  |  | - | ----- | 
|         |                 |                     |  |                     |           |         
|         |                 | Options Outstanding |  |                    
|         |                 |                     |  | Options Exercisable
|         |                 |                     |  | Weighted            |           |          |  |            
|         |                 |                     |  | Average             |           | Weighted |  |             |      | Weighted
|         |                 |                     |  | Remaining           |           | Average  |  |             |      | Average 
|Price    |                 | Number              |  | Contractual Life    |           | Exercise |  | Number      |      | Exercise
|Category |                 | Outstanding         |  | (In Years)          |           | Price    |  | Outstanding |      | Price   
|         |                 |                     |  |                     |           |          |  |             |      |         
|         | $ 1.14          |                     |  |                     | 3,041     |          |  |             | 0.02 |          |  | $ | 1.14  |  |  |  | 3,041     |  |  | $ | 1.14  | 
|         | 1.41 -  5.00    |                     |  |                     | 290,399   |          |  |             | 4.34 |          |  |   | 3.99  |  |  |  | 290,199   |  |  |   | 3.99  | 
|         | 5.25 -  8.25    |                     |  |                     | 1,223,471 |          |  |             | 6.53 |          |  |   | 7.01  |  |  |  | 941,894   |  |  |   | 6.96  | 
|         | 8.44 - 11.56    |                     |  |                     | 2,587,844 |          |  |             | 8.54 |          |  |   | 9.67  |  |  |  | 695,415   |  |  |   | 10.17 | 
|         | 11.62 - 14.65   |                     |  |                     | 743,719   |          |  |             | 5.95 |          |  |   | 13.53 |  |  |  | 436,036   |  |  |   | 13.49 | 
|         | 14.73 - 20.85   |                     |  |                     | 662,761   |          |  |             | 8.06 |          |  |   | 17.36 |  |  |  | 174,772   |  |  |   | 17.48 | 
|         | 29.40 - 33.05   |                     |  |                     | 73,458    |          |  |             | 4.28 |          |  |   | 32.43 |  |  |  | 73,458    |  |  |   | 32.43 | 
|         |                 |                     |  |                     |           |          |  |             |      |          |  |   |       |  |  |  |           |  |  |   |       | 
|         | $ 1.14 - $33.05 |                     |  |                     | 5,584,693 |          |  |             | 7.42 |          |  | $ | 10.51 |  |  |  | 2,614,815 |  |  | $ | 9.99  | 
|         |                 |                     |  |                     |           |          |  |             |      |          |  |   |       |  |  |  |           |  |  |   |       | 

10.     Related
Parties



| |                            
| | ---------------------------
| | Corporate Service Agreement

The Company had a corporate services agreement
with Thermo Electron, which terminated upon completion of the
Merger. Thermo Electrons corporate staff provided to the
Company certain administrative and financial services. The
Company paid Thermo Electron an annual amount equal to 0.8% of
the Companys revenues for these services. In addition, the
Company incurred direct charges that Thermo Electron paid
directly on its behalf. In 2001, 2000 and 1999, the Company paid
$124,000, $980,000 and $837,000, respectively, for these
administrative and financial services and direct charges.



| |                 
| | ----------------
| | Operating Leases

The Company subleases office and research
facilities from Thermo Electron, and is charged for actual
square footage occupied at approximately the same rent paid per
square foot by Thermo Electron under its prime lease. The
sublease expires in February 2004. The accompanying statement of
income includes expenses from the sublease of $193,600, $177,000
and $171,000 in 2001, 2000 and 1999, respectively.

The Company subleased a portion of an office and
research facility from Thermo Electron and was charged for
actual square footage occupied at approximately the same rent
paid per square foot by Thermo Electron under its prime lease.
The sublease agreement between the Company and Thermo Electron
was terminated in May 2000. The Company rented the same space
from a third party up until the lease terminated

61



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THORATEC CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

and the Company moved out of this facility in
February 2002. The accompanying statement of income includes
expenses from the sublease with Thermo Electron of nil, $36,000
and $65,000 in 2001, 2000 and 1999, respectively.

Future minimum annual payments due under these
noncancellable lease arrangements at December 29, 2001, are
$193,600 in 2002 and 2003 and $32,267 in 2004.



| |          
| | ---------
| | Purchases

The Company purchases metal fabrication products
and services from Tecomet, Inc. in connection with the
manufacture of the ventricular-assist products sold by the
Company. Tecomet was a division of Thermo Electron until
November 15, 2001 when it was sold by Thermo Electron to an
unrelated third party. The Company paid $2,931,000, $3,283,000
and $3,651,000 to Tecomet in 2001, 2000 and 1999, respectively.



| |                                     
| | ------------------------------------
| | Subordinated Convertible
	Debentures

The outstanding principal balance of the
subordinated convertible debentures as of the end of 2001 and
2002 of $54,838,000 includes $1,500,000 of debentures held by
Thermo Electron (Note 7).

11.     Taxes on
Income

The provisions for income taxes (benefits) and
extraordinary items, are as follows (in thousands):

|                                 |  |             |        |      |  |      |       |  |  |   |       |  
|-------------------------------- |  | ----------- | ------ | ---- |  | ---- | ----- |  |  | - | ----- | -
|                                 |  |            
|                                 |  | Fiscal Year
|                                 |  |            
|                                 |  | 2001        |        | 2000 |  | 1999
|                                 |  |             |        |      |  |     
|Current:                         |  |             |        |      |  |      |       |  |  |   |       |  
|Federal                          |  | $           |       |      |  | $    | 3,747 |  |  | $ | 2,702 |  
|State                            |  |             | 420    |      |  |      | 352   |  |  |   | 943   |  
|                                 |  |             |        |      |  |      |       |  |  |   |       |  
|                                 |  |             | 420    |      |  |      | 4,099 |  |  |   | 3,645 |  
|                                 |  |             |        |      |  |      |       |  |  |   |       |  
|Deferred:                        |  |             |        |      |  |      |       |  |  |   |       |  
|Federal                          |  |             | (2,915 | )    |  |      | 465   |  |  |   | (643  | )
|State                            |  |             | 662    |      |  |      | 66    |  |  |   | (137  | )
|                                 |  |             |        |      |  |      |       |  |  |   |       |  
|                                 |  |             | (2,253 | )    |  |      | 531   |  |  |   | (780  | )
|                                 |  |             |        |      |  |      |       |  |  |   |       |  
|                                 |  |             | (1,833 | )    |  |      | 4,630 |  |  |   | 2,865 |  
|Reduction of valuation allowance |  |             | (1,492 | )    |  |      |      |  |  |   |      |  
|                                 |  |             |        |      |  |      |       |  |  |   |       |  
|                                 |  | $           | (3,325 | )    |  | $    | 4,630 |  |  | $ | 2,865 |  
|                                 |  |             |        |      |  |      |       |  |  |   |       |  

62



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THORATEC CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The provision for income taxes in the
accompanying statements of operations differs from the provision
calculated by applying the U.S. federal statutory income
tax rate of 35% to income before provision for income taxes and
extraordinary item due to the following (in thousands):

|                                                                          |  |             |         |      |  |  |       |    |  |   |       |   |  |  |       |   |  |   |        |   |  |  |       |  
|------------------------------------------------------------------------- |  | ----------- | ------- | ---- |  |  | ----- | -- |  | - | ----- | - |  |  | ----- | - |  | - | ------ | - |  |  | ----- | -
|                                                                          |  |             |         |      |  |  |       |    |  |  
|                                                                          |  | 2001        |         |      |  |  |       |    |  |  
|                                                                          |  |             |         |      |  |  |       |    |  |  
|                                                                          |  |             |         |      |  |  |       |   
|                                                                          |  |             |         | 2000 |  |  |       |   
|                                                                          |  |             |         |      |  |  |       |   
|                                                                          |  |            
|                                                                          |  | Fiscal Year
|                                                                          |  |            
|                                                                          |  |             |         |     
|                                                                          |  |             |         | 1999
|                                                                          |  |             |         |     
|U.S. federal statutory income tax expense
	(benefit)                      |  | $           | (31,916 | )    |  |  | (35.0 | )% |  | $ | 4,187 |   |  |  | 35.0  | % |  | $ | 3,933  |   |  |  | 35.0  | %
|State income tax expense (benefit), net of
	federal tax expense (benefit) |  |             | (794    | )    |  |  | (0.9  | )  |  |   | 272   |   |  |  | 2.3   |   |  |   | 524    |   |  |  | 4.7   |  
|Non-deductible amortization of goodwill                                   |  |             | 1,524   |      |  |  | 1.7   |    |  |   |      |   |  |  |      |   |  |   |       |   |  |  |      |  
|Non-deductible acquired IPR&D                                             |  |             | 26,900  |      |  |  | 29.5  |    |  |   |      |   |  |  |      |   |  |   |       |   |  |  |      |  
|Non-deductible merger expenses                                            |  |             | 175     |      |  |  | 0.2   |    |  |   |      |   |  |  |      |   |  |   |       |   |  |  |      |  
|Export benefits                                                           |  |             | (50     | )    |  |  | (0.1  | )  |  |   | (134  | ) |  |  | (1.1) |   |  |   | (116   | ) |  |  | (1.0  | )
|Federal research and development credits                                  |  |             | (100    | )    |  |  | (0.1  | )  |  |   |      |   |  |  |      |   |  |   | (1,508 | ) |  |  | (13.4 | )
|Other                                                                     |  |             | 936     |      |  |  | 1.1   |    |  |   | 305   |   |  |  | 2.5   |   |  |   | 32     |   |  |  | 0.2   |  
|                                                                          |  |             |         |      |  |  |       |    |  |   |       |   |  |  |       |   |  |   |        |   |  |  |       |  
|                                                                          |  | $           | (3,325  | )    |  |  | (3.6  | )% |  | $ | 4,630 |   |  |  | 38.7  | % |  | $ | 2,865  |   |  |  | 25.5  | %
|                                                                          |  |             |         |      |  |  |       |    |  |   |       |   |  |  |       |   |  |   |        |   |  |  |       |  

During 1999, the Company received a favorable
resolution of a claim for prior-year research and development
tax credits, which reduced the tax provision by $1,508,000.

Deferred income taxes reflect the net tax effects
of: (a) temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes, and (b) operating
loss and tax credits carryforwards.

Significant components of the Companys net
deferred taxes are as follows (in thousands):

|                                      |                                               |             |         |         |   |   |       |        |  
|------------------------------------- | --------------------------------------------- | ----------- | ------- | ------- | - | - | ----- | ------ | -
|                                      |                                               |            
|                                      |                                               | Fiscal Year
|                                      |                                               |            
|                                      |                                               | 2001        |         | 2000   
|                                      |                                               |             |         |        
|Deferred tax assets:                  |                                               |             |         |         |   |   |       |       
|                                      | Write-off of acquired technology              |             | $       | 1,304   |   |   | $     | 1,427  |  
|                                      | Reserves and accruals                         |             |         | 2,186   |   |   |       | 2,576  |  
|                                      | Depreciation and amortization                 |             |         | 2,709   |   |   |       | 1,179  |  
|                                      | Inventory basis difference                    |             |         | 2,361   |   |   |       | 958    |  
|                                      | Research and development credit carryforwards |             |         | 1,609   |   |   |       |       |  
|                                      | Net operating loss carryovers                 |             |         | 10,586  |   |   |       |       |  
|                                      | State tax loss and credit carryforwards       |             |         |        |   |   |       | 1,492  |  
|                                      | Other, net                                    |             |         | 347     |   |   |       | (67    | )
|                                      |                                               |             |         |         |   |   |       |       
|                                      |                                               |             | 21,102  |         |   |   | 7,565 |       
|                                      | Valuation allowance                           |             |         |        |   |   |       | (1,492 | )
|                                      |                                               |             |         |         |   |   |       |       
|Net deferred tax assets               |                                               |             | 21,102  |         |   |   | 6,073 |       
|                                      |                                               |             |         |         |   |   |       |       
|Deferred tax liabilities:             |                                               |             |         |         |   |   |       |       
|                                      | Purchased intangibles                         |             |         | (79,697 | ) |   |       |       |  
|                                      |                                               |             |         |         |   |   |       |       
|Net deferred tax assets (liabilities) |                                               | $           | (58,595 | )       |   | $ | 6,073 |       
|                                      |                                               |             |         |         |   |   |       |       

63



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THORATEC CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The valuation allowance relates to the
realizability of state net operating loss (NOL)
carryovers of $2,100,000, which would have expired in 2001
through 2005 and state tax credit carryforwards of $1,290,000,
which would have expired in 2001 through 2012. These NOL and tax
credit carryforwards were extinguished upon the closing of the
Merger.

At the end of 2001, the Company had federal and
state NOL carryforwards of approximately $29,000,000, which
expire from 2003 through 2021. Use of $7,400,000 of the NOL
carryforwards, which arose prior to a greater than 50% change in
ownership in 1992, is limited to approximately $440,000 per year.

12.     Enterprise
and Related Geographic Information

The Company organizes and manages its business by
functional operating entities. The Companys functional
entities operate in two segments: (1) Cardiovascular and
(2) Other Medical Equipment. The Cardiovascular segment
develops, manufactures and markets proprietary medical devices
used for circulatory support and vascular graft applications.
The Other Medical Equipment segment develops, manufactures and
markets near-patient, whole-blood coagulation testing equipment
and related disposables, as well as premium quality, single-use
skin incision devices. All 2000 and 1999 financial information
presented herein represents the results of operations of
TCAs Cardiovascular segment and Other Medical Equipment
segment. The 2001 financial information presented herein
includes the financial results of TCAs segments for the
entire fiscal year and the financial results of Thoratecs
Cardiovascular segment only for the post-merger period from
February 14, 2001 through December 29, 2001.

64



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THORATEC CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Business segments (in thousands):

|                                                           |                                                           |                                     |                                                          |         |         |         |   |         |         |        |   |         |         |        | 
|---------------------------------------------------------- | --------------------------------------------------------- | ----------------------------------- | -------------------------------------------------------- | ------- | ------- | ------- | - | ------- | ------- | ------ | - | ------- | ------- | ------ | 
|                                                           |                                                           |                                    
|                                                           |                                                           | Fiscal Year                        
|                                                           |                                                           |                                    
|                                                           |                                                           | 2001                                |                                                          | 2000    |         | 1999   
|                                                           |                                                           |                                     |                                                          |         |         |        
|Product sales:                                             |                                                           |                                     |                                                          |         |         |         |   |         |         |        |   |        
|                                                           | Cardiovascular                                            |                                     | $                                                        | 71,809  |         |         | $ | 43,049  |         |        | $ | 39,810  |        
|                                                           | Other medical equipment                                   |                                     |                                                          | 41,575  |         |         |   | 40,347  |         |        |   | 38,801  |        
|                                                           |                                                           |                                     |                                                          |         |         |         |   |         |         |        |   |        
|                                                           |                                                           | Total product sales                 |                                                          | $       | 113,384 |         |   | $       | 83,396  |        |   | $       | 78,611  |       
|                                                           |                                                           |                                     |                                                          |         |         |         |   |         |         |        |   |        
|Income (loss) before income taxes and
	extraordinary item: |                                                           |                                     |                                                          |         |         |         |   |         |         |        |   |        
|                                                           | Cardiovascular                                            |                                     | $                                                        | (177    | )       |         | $ | 1,499   |         |        | $ | (729    | )      
|                                                           | Other medical equipment                                   |                                     |                                                          | 8,953   |         |         |   | 8,270   |         |        |   | 8,789   |        
|                                                           | Corporate(a)                                              |                                     |                                                          | (2,660  | )       |         |   | (980    | )       |        |   | (837    | )      
|                                                           | Amortization of goodwill and purchased intangibles        |                                     |                                                          | (15,674 | )       |         |   |        |         |        |   |        |        
|                                                           | In-process research and development                       |                                     |                                                          | (76,858 | )       |         |   |        |         |        |   |        |        
|                                                           | Merger, restructuring and other costs                     |                                     |                                                          | (7,134  | )       |         |   | (1,831  | )       |        |   |        |        
|                                                           |                                                           |                                     |                                                          |         |         |         |   |         |         |        |   |        
|                                                           |                                                           | Total operating income (loss)       |                                                          | $       | (93,550 | )       |   | $       | 6,958   |        |   | $       | 7,223   |       
|                                                           | Interest and other income, net                            |                                     |                                                          | 2,359   |         |         |   | 5,005   |         |        |   | 4,014   |        
|                                                           |                                                           |                                     |                                                          |         |         |         |   |         |         |        |   |        
|                                                           |                                                           |                                     | Total income (loss) before taxes and
	extraordinary item |         | $       | (91,191 | ) |         | $       | 11,963 |   |         | $       | 11,237 | 
|                                                           |                                                           |                                     |                                                          |         |         |         |   |         |         |        |   |        
|Total assets:                                              |                                                           |                                     |                                                          |         |         |         |   |         |         |        |   |        
|                                                           | Cardiovascular                                            |                                     | $                                                        | 57,299  |         |         | $ | 25,136  |         |        | $ | 36,893  |        
|                                                           | Other medical equipment                                   |                                     |                                                          | 19,883  |         |         |   | 15,808  |         |        |   | 14,801  |        
|                                                           | Corporate(b)                                              |                                     |                                                          | 159,242 |         |         |   | 135,741 |         |        |   | 118,234 |        
|                                                           | Goodwill and purchased intangible assets                  |                                     |                                                          | 293,817 |         |         |   |        |         |        |   |        |        
|                                                           |                                                           |                                     |                                                          |         |         |         |   |         |         |        |   |        
|                                                           |                                                           | Total assets                        |                                                          | $       | 530,241 |         |   | $       | 176,685 |        |   | $       | 169,928 |       
|                                                           |                                                           |                                     |                                                          |         |         |         |   |         |         |        |   |        
|Depreciation and amortization:                             |                                                           |                                     |                                                          |         |         |         |   |         |         |        |   |        
|                                                           | Cardiovascular                                            |                                     | $                                                        | 3,634   |         |         | $ | 1,664   |         |        | $ | 1,536   |        
|                                                           | Other medical equipment                                   |                                     |                                                          | 1,214   |         |         |   | 1,446   |         |        |   | 1,448   |        
|                                                           | Amortization of goodwill and purchased intangible
	assets |                                     |                                                          | 15,674  |         |         |   |        |         |        |   |        |        
|                                                           |                                                           |                                     |                                                          |         |         |         |   |         |         |        |   |        
|                                                           |                                                           | Total depreciation and amortization |                                                          | $       | 20,522  |         |   | $       | 3,110   |        |   | $       | 2,984   |       
|                                                           |                                                           |                                     |                                                          |         |         |         |   |         |         |        |   |        
|Capital expenditures:                                      |                                                           |                                     |                                                          |         |         |         |   |         |         |        |   |        
|                                                           | Cardiovascular                                            |                                     | $                                                        | 6,789   |         |         | $ | 1,243   |         |        | $ | 1,103   |        
|                                                           | Other medical equipment                                   |                                     |                                                          | 1.158   |         |         |   | 1,117   |         |        |   | 1,437   |        
|                                                           |                                                           |                                     |                                                          |         |         |         |   |         |         |        |   |        
|                                                           |                                                           | Total capital expenditures          |                                                          | $       | 7,947   |         |   | $       | 2,360   |        |   | $       | 2,540   |       
|                                                           |                                                           |                                     |                                                          |         |         |         |   |         |         |        |   |        



---



|    |                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------
|(a) | Primarily represents general and administrative
	expenses not specifically identified to any particular business
	segment.
|   
|(b) | Represents items not specifically identified to
	any particular business segment.                                         

65



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THORATEC CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Geographic Areas (in thousands):

|               |                         |                     |   |        |         |      |   |        |        |  |   |        |        | 
|-------------- | ----------------------- | ------------------- | - | ------ | ------- | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|               |                         |                    
|               |                         | Fiscal Year        
|               |                         |                    
|               |                         | 2001                |   | 2000   |         | 1999
|               |                         |                     |   |        |         |     
|Product Sales: |                         |                     |   |        |         |      |   |        |        |  |   |       
|               | Domestic                |                     | $ | 90,678 |         |      | $ | 69,786 |        |  | $ | 65,980 |       
|               | Europe                  |                     |   | 13,000 |         |      |   | 8,140  |        |  |   | 7,259  |       
|               | All other international |                     |   | 9,706  |         |      |   | 5,470  |        |  |   | 5,372  |       
|               |                         |                     |   |        |         |      |   |        |        |  |   |       
|               |                         | Total international |   |        | 22,706  |      |   |        | 13,610 |  |   |        | 12,631 | 
|               |                         |                     |   |        |         |      |   |        |        |  |   |       
|               |                         | Total               |   | $      | 113,384 |      |   | $      | 83,396 |  |   | $      | 78,611 | 
|               |                         |                     |   |        |         |      |   |        |        |  |   |       

13.     Commitments

The Company had various firm purchase commitments
totaling approximately $13,000,000 at December 29, 2001.

In July 1998, the Company established an
Executive Officer Severance Benefits Plan and an Employee
Severance Benefits Plan as part of the employee benefits
package. The plans provide severance benefits to certain
employees whose employment is terminated, other than for cause.
An Executive Officers standard severance pay benefit is
equal to one times annualized base salary. An employees
severance benefit is equal to an amount based on job level and
length of service.

14.     Retirement
Savings Plan

Substantially all of the Companys full-time
employees are eligible to participate in a 401(k) retirement
savings plan. As of the date of the Merger and continuing
through June 30, 2001, two retirement savings plans were in
effect, representing the pre-merger plan of Thoratec and a new
plan set in place as of the Merger date. Prior to
February 14, 2001, TCA participated in Thermo
Electrons retirement savings plan. Effective July 1,
2001, the two plans were combined into a new savings plan (the
Retirement Plan). Under the Retirement Plan,
employees may elect to contribute up to 15% of their eligible
compensation to the Retirement Plan, subject to certain
limitations. In 2001 the Company match was 50%, up to the first
6% of eligible employee plan compensation. Employees vest under
the Retirement Plan at the rate of 25% per year, with full
vesting after four years of service with the Company. For 2001,
2000 and 1999, the Company made contributions to the Retirement
Plan of approximately $674,000, $804,000 and $726,000,
respectively.

15.     Merger,
Restructuring and Other Costs

During 2001 and 2000, the following merger,
restructuring and other costs were recorded in expense (in
thousands):

|              |  |             |       |      |  |   |       | 
|------------- |  | ----------- | ----- | ---- |  | - | ----- | 
|              |  |            
|              |  | Fiscal Year
|              |  |            
|              |  | 2001        |       | 2000
|              |  |             |       |     
|Merger        |  | $           | 5,326 |      |  | $ | 1,831 | 
|Restructuring |  |             | 1,093 |      |  |   |      | 
|Other         |  |             | 715   |      |  |   |      | 
|              |  |             |       |      |  |   |       | 
|Total         |  | $           | 7,134 |      |  | $ | 1,831 | 
|              |  |             |       |      |  |   |       | 

No merger, restructuring and other costs were
recorded in 1999.

66



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THORATEC CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Merger
Costs

Merger costs recorded during 2001 and 2000
principally consisted of employee severance, pre-merger employee
retention costs, and outside consulting, accounting and legal
expenses associated with the Merger. Early in 2000, Thermo
Electron announced its intent to sell TCA. In conjunction with
this announcement, TCA put in place an employee retention plan,
which offered a bonus to certain key employees to continue
employment with TCA through the completion of the sale of the
company. Upon closure of the Merger between TCA and Thoratec,
certain Thoratec executives stock options accelerated per
the original terms of the stock option agreements. In exchange
for a waiver of their rights to immediately exercise these
options and to sell the related stock, the Company put in place
a bonus plan to serve as compensation to these executives for
that waiver.

The following table reflects the activity in
accrued merger costs for 2001 and 2000 (in thousands):

|                      |                                    |             |       |        |   |   |       |       |  
|--------------------- | ---------------------------------- | ----------- | ----- | ------ | - | - | ----- | ----- | -
|                      |                                    |            
|                      |                                    | Fiscal Year
|                      |                                    | 2001        |       | 2000  
|                      |                                    |             |       |       
|Accrued Merger Costs: |                                    |             |       |        |   |   |       |      
|Beginning balance     |                                    | $           | 1,708 |        |   | $ |      |      
|Add:                  |                                    |             |       |        |   |   |       |      
|                      | Pre-merger retention accrual       |             |       |       |   |   |       | 1,831 |  
|                      | Executive waiver agreement accrual |             |       | 684    |   |   |       |      |  
|                      | Employee severance accrual         |             |       | 2,825  |   |   |       |      |  
|Less:                 |                                    |             |       |        |   |   |       |      
|                      | Payments of pre-merger retention   |             |       | (1,708 | ) |   |       | (123  | )
|                      | Payments of employee severance     |             |       | (2,825 | ) |   |       |      |  
|                      | Payments of waiver agreement       |             |       | (212   | ) |   |       |      |  
|                      |                                    |             |       |        |   |   |       |      
|Ending balance        |                                    | $           | 472   |        |   | $ | 1,708 |      
|                      |                                    |             |       |        |   |   |       |      

Certain 2001 merger costs were recorded directly
to expense and did not pass through accrued merger costs. These
expenses consisted primarily of legal, audit, consulting and
other professional fees related to the Merger and totaled
$1,817,000 for 2001.

Restructuring
Costs

In June 2001, the Company approved a
restructuring plan (the Restructuring Plan) to
consolidate all of its VAD manufacturing operations to its
manufacturing facilities and headquarters in Pleasanton,
California. The restructuring initiatives, which have already
commenced, are related to the Companys desire to provide
maximum value to shareholders through achievement of operating
efficiencies. The Company estimates that substantial savings
will result upon completion of the Restructuring Plan. The
Restructuring Plan specifically provides for the reduction of
approximately 90 of the Companys manufacturing and related
workforce at its Woburn and Chelmsford, Massachusetts
facilities. The Company notified the affected employees during
the second quarter of 2001, both through direct personal contact
and written notification. The Chelmsford facility was closed in
February 2002. The Companys HeartMate® family of
products, which are currently manufactured at the Woburn
facility, will be transitioned to the Pleasanton facility. The
Restructuring Plan is estimated to take 18 months because
of FDA certification requirements for the new manufacturing
activities in Pleasanton. Substantially all of the milestones
related to the relocation that are controllable by the Company
will be completed within 12 months of the date of
announcement. Because the Companys products are regulated
by the FDA, it is estimated it will take an additional six
months to complete the FDA review and certification process
before the HeartMate products can be manufactured in Pleasanton.

67



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THORATEC CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The Company believes it can make reasonable
estimates of the involuntary employee termination benefits since
it has specifically identified the employees that will be
involuntarily terminated as well as the benefits that each
affected employee will receive. Management does not believe
there are likely to be any developments during the intervening
18 months required to relocate the manufacturing operations,
which would have a significant impact on Thoratecs
original restructuring cost estimates. Although the relocation
plan has been documented, in detail, small changes in the timing
of specific activities are expected. The impact on the estimate
for these changes is not expected to be material. Through
December 29, 2001, the Company has accrued $995,000 of
restructuring charges in accordance with Emerging Issues Task
Force 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an
Activity and Staff Accounting Bulletin 100,
Restructuring and Impairment Charges. These charges
represent estimated severance costs. As of December 29,
2001, the Company has paid approximately $132,000 in severance
payments to 2 employees related to the restructuring. The
following is a summary of the Companys accrued
restructuring costs activity in 2001 and 2000
(in thousands):

|                             |                                |             |     |      |   |   |   |   | 
|---------------------------- | ------------------------------ | ----------- | --- | ---- | - | - | - | - | 
|                             |                                |            
|                             |                                | Fiscal Year
|                             |                                |            
|                             |                                | 2001        |     | 2000
|                             |                                |             |     |     
|Accrued Restructuring Costs: |                                |             |     |      |   |   |   |  
|Beginning balance            |                                | $           |    |      |   | $ |  |  
|                             | Employee severance accrual     |             |     | 995  |   |   |   |  | 
|                             | Payments of employee severance |             |     | (132 | ) |   |   |  | 
|                             |                                |             |     |      |   |   |   |  
|Ending balance               |                                | $           | 863 |      |   | $ |  |  
|                             |                                |             |     |      |   |   |   |  

In addition to the employee severance, estimated
restructuring costs includes $98,000 of expense related to the
estimated fair value of options granted to the employees to be
severed in the Restructuring Plan, which were accelerated upon
the Merger.



| |            
| | -----------
| | Other Costs

Other costs of $715,000 were incurred in the
third quarter of 2001 related to the events of
September 11, 2001. As of December 29, 2001, the total
amount of these other costs were paid.

16.     Earnings
(Loss) Per Share

Although Thoratec is the surviving legal entity
after the Merger, the Merger is treated as an acquisition of
Thoratec by TCA for accounting and financial reporting purposes.
The weighted average number of common shares previously reported
by TCA has been adjusted for all periods to reflect the exchange
ratio of 0.835 to 1.

Basic earnings (loss) per share are computed by
dividing net income (loss) by the weighted average number of
common shares outstanding during the period. Diluted earnings
per share reflect the potential dilution that could occur if
securities or other contracts to issue common stock were
exercised or converted into common stock. Options to purchase
5,584,693 shares of common stock were not included in the
computations of diluted loss per share for 2001 as their
inclusion would be antidilutive. Options to purchase 774,000 and
1,191,000 shares of common stock were not included in the
computations of diluted earnings per share for 2000 and 1999
because their effect would have been antidilutive due to the
options exercise prices exceeding the average market price
for the common stock. In addition, the computation of diluted
earnings per share for each period presented excluded the effect
of assuming the conversion of the Companys 4.75%
subordinated convertible debentures, convertible at $37.62 per
share, because their effect would have been antidilutive.

68



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THORATEC CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Basic and diluted earnings (loss) per share
were calculated as follows (in thousands, except per share data):

|                                                                              |  |      |         |      |  |      |        |  |  |   |        | 
|----------------------------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------ |  |  | - | ------ | 
|                                                                              |  | 2001 |         | 2000 |  | 1999
|                                                                              |  |      |         |      |  |     
|Net income (loss) before extraordinary item                                   |  | $    | (87,866 | )    |  | $    | 7,333  |  |  | $ | 8,372  | 
|Extraordinary item  net of taxes                                             |  |      |        |      |  |      | 191    |  |  |   | 1,212  | 
|                                                                              |  |      |         |      |  |      |        |  |  |   |        | 
|Net income (loss)                                                             |  | $    | (87,866 | )    |  | $    | 7,524  |  |  | $ | 9,584  | 
|                                                                              |  |      |         |      |  |      |        |  |  |   |        | 
|Weighted average number of common shares-Basic                                |  |      | 52,336  |      |  |      | 32,193 |  |  |   | 32,100 | 
|Dilutive effect of employee stock options                                     |  |      |        |      |  |      | 16     |  |  |   | 32     | 
|                                                                              |  |      |         |      |  |      |        |  |  |   |        | 
|Weighted average number of common shares-Diluted                              |  |      | 52,336  |      |  |      | 32,209 |  |  |   | 32,132 | 
|                                                                              |  |      |         |      |  |      |        |  |  |   |        | 
|Basic and diluted earnings (loss) per common
	share before extraordinary item |  | $    | (1.68   | )    |  | $    | 0.23   |  |  | $ | 0.26   | 
|                                                                              |  |      |         |      |  |      |        |  |  |   |        | 
|Basic and diluted earnings (loss) per common share                            |  | $    | (1.68   | )    |  | $    | 0.23   |  |  | $ | 0.30   | 
|                                                                              |  |      |         |      |  |      |        |  |  |   |        | 

17.     Extraordinary
Item

During 2000, the Company repurchased $3,173,000
principal amount of its 4.75% subordinated convertible
debentures, convertible at $37.62 per share, for $2,825,000 in
cash, resulting in an extraordinary gain of $191,000, net of
taxes of $117,000.

During 1999, the Company repurchased $11,989,000
principal amount of its 4.75% subordinated convertible
debentures for $9,985,000 in cash, resulting in an extraordinary
gain of $1,212,000, net of taxes of $743,000.

18.     Quarterly
Results of Operations (Unaudited)

The following is a summary of the unaudited
quarterly results of operations for the fiscal years 2001 and
2000:

|                                            |  |                                       |         |        |  |       |        |        |  |   |        |   |  |   |        | 
|------------------------------------------- |  | ------------------------------------- | ------- | ------ |  | ----- | ------ | ------ |  | - | ------ | - |  | - | ------ | 
|                                            |  | First                                 |         | Second |  | Third |        | Fourth
|                                            |  |                                       |         |        |  |       |        |       
|                                            |  |                                      
|                                            |  | (In thousands, except per share data)
|Fiscal Year 2001                            |  |                                       |         |        |  |       |        |        |  |   |        |   |  |   |        | 
|Product sales                               |  | $                                     | 21,480  |        |  | $     | 28,218 |        |  | $ | 28,666 |   |  | $ | 35,020 | 
|Gross profit                                |  |                                       | 11,440  |        |  |       | 15,573 |        |  |   | 15,062 |   |  |   | 18,469 | 
|Net income (loss)                           |  |                                       | (82,180 | )      |  |       | (3,103 | )      |  |   | (2,968 | ) |  |   | 385    | 
|Basic and diluted earnings (loss) per share |  | $                                     | (1.88   | )      |  | $     | (0.06  | )      |  | $ | (0.05  | ) |  | $ | 0.01   | 
|                                           
|Fiscal Year 2000                            |  |                                       |         |        |  |       |        |        |  |   |        |   |  |   |        | 
|Product sales                               |  | $                                     | 19,929  |        |  | $     | 22,609 |        |  | $ | 19,391 |   |  | $ | 21,467 | 
|Gross profit                                |  |                                       | 11,769  |        |  |       | 13,209 |        |  |   | 11,092 |   |  |   | 12,496 | 
|Net income                                  |  |                                       | 1,770   |        |  |       | 2,639  |        |  |   | 1,494  |   |  |   | 1,621  | 
|Basic and diluted earnings per share        |  | $                                     | 0.05    |        |  | $     | 0.08   |        |  | $ | 0.05   |   |  | $ | 0.05   | 

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|        |                                                                                      
|------- | -------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with
	Accountants on Accounting and Financial Disclosure

None.

70



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PART III




Item 10.     Directors
and Executive Officers of the Registrant

The information regarding directors and executive
officers required by Item 10 is incorporated by reference
from the information under the captions Election of
Directors, Directors and Executive Officers
and Section 16(a) Beneficial Ownership Reporting
Compliance in the definitive proxy statement to be filed
with the Securities and Exchange Commission pursuant to
Regulation 14A for our 2002 annual meeting of stockholders.




Item 11.     Executive
Compensation

The information required by Item 11 is
incorporated by reference from the information under the caption
Executive Compensation and Other Information in the
definitive proxy statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A for our 2002
annual meeting of stockholders.




Item 12.     Security
Ownership of Certain Beneficial Owners and
Management

The information required by Item 12 is
incorporated by reference from the information under the caption
Security Ownership of Certain Beneficial Owners and
Management in the definitive proxy statement to be filed
with the Securities and Exchange Commission pursuant to
Regulation 14A for our 2002 annual meeting of stockholders.




Item 13.     Certain
Relationships and Related Transactions

The information required by Item 13 is
incorporated by reference from the information under the caption
Certain Relationships and Related Transactions in
the definitive proxy statement to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A for our
2002 annual meeting of stockholders.

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PART IV




Item 14.     Exhibits,
Financial Statement Schedules, and Reports on
Form 8-K

(a) List of documents filed as part of
this report:



| |    |                                                      
| | -- | -----------------------------------------------------
| | 1. | Financial Statements and Independent Auditors
	Report

Reference is made to the Index to Financial
Statements under Item 8 of Part II of this report, where
these documents are included.



| |    |                              
| | -- | -----------------------------
| | 2. | Financial Statement Schedules

Independent Auditors Report 
Deloitte & Touche LLP

Report of Independent Public
Accountants  Arthur Andersen LLP


Schedule II  Valuation and
Qualifying Accounts and Reserves


Other financial statement schedules are not
included either because they are not required or the information
is otherwise shown in the financial statements or notes thereto.



| |                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------
| | 3.     Exhibits filed
	with Annual Report on Form 10-K (numbered in accordance
	with Item 601 of Regulation S-K).

(b) Reports on Form 8-K:

The following report on Form 8-K was filed
during the last quarter of our 2001 fiscal year:



| |                                                                                                                                                                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. Report on Form 8-K with the
	Securities and Exchange Commission on October 24, 2001
	updating our unaudited pro forma combined condensed statements
	of operations for the year ended December 30, 2000 and for
	the nine months ended September 30, 2001 provided in
	connection with our merger with Thermo Cardiosystems Inc. on
	February 14, 2001.

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INDEPENDENT AUDITORS REPORT

To the Board of Directors and Shareholders of

Thoratec Corporation:


We have audited the financial statements of
Thoratec Corporation (the Company) as of
December 29, 2001, and for year then ended, and have issued
our report thereon dated February 21, 2002; such report is
included elsewhere in this Annual Report on Form 10-K. Our audit
also included the 2001 financial statement schedule listed in
Item 14(a)(2). This financial statement schedule is the
responsibility of the Companys management. Our
responsibility is to express an opinion based on our audits. In
our opinion, such 2001 financial statement schedule, when
considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the
information set forth therein.

/s/ DELOITTE & TOUCHE LLP

San Francisco, California

February 21, 2002


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REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS

Shareholders and Board of Directors of Thoratec
Corporation:

We have audited, in accordance with generally
accepted auditing standards, the consolidated financial
statements as of December 30, 2000 and for the two years
then ended included in this Annual Report on Form 10-K, and
have issued our report thereon dated February 5, 2001. Our
audits were made for the purpose of forming an opinion on those
statements taken as a whole. The schedule listed in
Item 14(a)2 is the responsibility of the Companys
management and is presented for purposes of complying with the
Securities and Exchange Commissions rules and is not part
of the basic consolidated financial statements. The schedule has
been subjected to the auditing procedures applied in the audits
of the basic consolidated financial statements and, in our
opinion, fairly states in all material respects the consolidated
financial data required to be set forth therein in relation to
the basic consolidated financial statements taken as a whole.



| |                        
| | -----------------------
| | /s/ ARTHUR ANDERSEN LLP

Boston, Massachusetts

February 5, 2001


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THORATEC CORPORATION AND
SUBSIDIARIES

SCHEDULE II  VALUATION AND
QUALIFYING ACCOUNTS

For the Three Fiscal Years Ended
December 29, 2001


|                              |                                 |                |   |           |  |             |   |            |  |         |   |    |   |  |   |      |      |  |   |       | 
|----------------------------- | ------------------------------- | -------------- | - | --------- |  | ----------- | - | ---------- |  | ------- | - | -- | - |  | - | ---- | ---- |  | - | ----- | 
|                              |                                 |                |   |           |  | Charged     |   |            |  |        
|                              |                                 | Balance        |   |           |  | (Credited)  |   |            |  | Balance
|                              |                                 | Beginning      |   |           |  | to Other    |   |            |  | End of 
|                              |                                 | of Year        |   | Additions |  | Accounts(1) |   | Deductions |  | Year   
|                              |                                 |                |   |           |  |             |   |            |  |        
|                              |                                 |               
|                              |                                 | (In thousands)
|Year Ended December 29, 2001: |                                 |                |   |           |  |             |   |            |  |         |   |    |   |  |   |      |      |  |   |      
|                              | Allowance for doubtful accounts |                | $ | 939       |  |             | $ | 337        |  |         | $ |   |   |  | $ | (725 | )(2) |  | $ | 551   | 
|                              | Accrued product warranty        |                | $ | 970       |  |             | $ | 594        |  |         | $ |   |   |  | $ | (654 | )    |  | $ | 910   | 
|                             
|Year Ended December 30, 2000: |                                 |                |   |           |  |             |   |            |  |         |   |    |   |  |   |      |      |  |   |      
|                              | Allowance for doubtful accounts |                | $ | 1,009     |  |             | $ | 25         |  |         | $ | (1 | ) |  | $ | (94  | )(2) |  | $ | 939   | 
|                              | Accrued product warranty        |                | $ | 1,420     |  |             | $ | 49         |  |         | $ |   |   |  | $ | (499 | )    |  | $ | 970   | 
|                             
|Year Ended January 1, 2000:   |                                 |                |   |           |  |             |   |            |  |         |   |    |   |  |   |      |      |  |   |      
|                              | Allowance for doubtful accounts |                | $ | 951       |  |             | $ | 120        |  |         | $ | (1 | ) |  | $ | (61  | )(2) |  | $ | 1,009 | 
|                              | Accrued product warranty        |                | $ | 1,210     |  |             | $ | 210        |  |         | $ |   |   |  | $ |     |      |  | $ | 1,420 | 



---

(1) Effects of exchange rate changes.

(2) Accounts written off, net of recoveries.

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EXHIBIT INDEX

|        |     |                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                     
|------- | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |     |                                                                                                                                                                                                                
|Number  |     | Exhibit                                                                                                                                                                                                        
|        |     |                                                                                                                                                                                                                
|        | 3.1 |                                                                                                                                                                                                                 | Thoratecs Articles of Incorporation, as
	amended.(1)                                                                                                                                                                                               
|        | 3.2 |                                                                                                                                                                                                                 | Thoratecs By-Laws, as amended.(1)                                                                                                                                                                                                                  
|        | 4.1 |                                                                                                                                                                                                                 | Fiscal Agency Agreement dated as of May 14,
	1997, among Thoratec Cardiosystems, Thermo Electron, and Bankers
	Trust Company as fiscal agent relating to $70 million
	principal amount of 4.75% Convertible Subordinated
	Debentures due 2004.(2)(3)
|10.1    |     | Thoratecs 1984 Incentive Stock Option Plan,
	as amended.(4)                                                                                                                                                   
|10.2    |     | Sublease dated August 19, 1988, between
	Thoratec Cardiosystems and Thermedics, as amended by Amendment
	No. 1 dated January 1, 1990(5); and as further amended
	by Amendment No. 2 dated February 14, 2001.(6)
|10.3    |     | Intellectual Property Cross-license Agreement
	between Thermedics and the Thoratec Cardiosystems dated
	August 19, 1988.(7)                                                                                    
|10.4    |     | Form of Indemnification Agreement between
	Thoratec Cardiosystems and its officers and directors.(7)                                                                                                           
|10.5    |     | Agreement for the acquisition of Th. Goldschmidt
	AG of Certain of the Assets of Thoratec dated March 29,
	1989.(8)                                                                                            
|10.6    |     | Common Stock Purchase Agreement between COBE
	Laboratories, Inc. and Thoratec dated November 23, 1992.(9)                                                                                                      
|10.7    |     | License Agreement between COBE Laboratories, Inc.
	and Thoratec dated November 23, 1992.(9)                                                                                                                    
|10.8    |     | Thoratecs 1993 Stock Option Plan.(10)                                                                                                                                                                         
|10.9    |     | Agreement dated May 26, 1993, between The
	Polymer Technology Group Incorporated and the Thoratec
	Cardiosystems.(11)                                                                                          
|10.10   |     | Thoratecs 1996 Stock Option Plan.(12)                                                                                                                                                                         
|10.11   |     | Thoratecs 1996 Nonemployee Directors Stock
	Option Plan, as amended.(13)                                                                                                                                      
|10.12   |     | Lease Agreement dated July 25, 1996, between
	Main Street Associates and Thoratec, as amended.(14)                                                                                                             
|10.13   |     | First Amendment to Lease Agreement originally
	between Main Street Associates and Thoratec dated July 25,
	1996.(15)                                                                                           
|10.14   |     | Second Amendment to Lease Agreement originally
	between Main Street Associates and Thoratec dated July 25,
	1996.(16)                                                                                          
|10.15   |     | Thoratecs 1997 Stock Option Plan, as
	amended.(17)                                                                                                                                                            
|10.16   |     | Amended and Restated Directors Stock Option Plan
	of Thoratec Cardiosystems.(18)                                                                                                                               
|10.17   |     | Amended and Restated Deferred Compensation Plan
	for Directors of Thoratec Cardiosystems.(18)                                                                                                                  
|10.18   |     | Amended and Restated Equity Incentive Plan of
	Thoratec Cardiosystems.(18)                                                                                                                                     
|10.19   |     | Amended and Restated Nonqualified Stock Option
	Plan of Thoratec Cardiosystems.(18)                                                                                                                            
|10.20   |     | Agreement and Plan of Merger by and among
	Thoratec, Lightning Acquisition Corporation, Thermo
	Cardiosystems Inc, and Thermo Electron Corporation dated
	October 3, 2000.(19)                                 
|10.21   |     | Registration Rights Agreement by and between
	Thoratec and Thermo Electron dated October 3, 2000.(19)                                                                                                          
|10.22   |     | Shareholder Agreement by and between Thoratec and
	Thermo Electron dated October 3, 2000.(19)                                                                                                                  
|10.23   |     | Lease agreement dated August 16, 1995,
	between International Technidyne and BHBMC, as amended.                                                                                                                
|10.24   |     | Transition Agreement dated February 18,
	2000, between R. Michael Kleine and Thermo Electron Corporation
	relating to the proposed sale of Thoratec Cardiosystems.(20)                                         

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|        |  |                                                                                                                                                                       
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                       
|Number  |  | Exhibit                                                                                                                                                               
|        |  |                                                                                                                                                                       
|10.25   |  | Transition Agreement dated February 18,
	2000, between Victor L. Poirier and Thermo Electron Corporation
	relating to the proposed sale of Thoratec Cardiosystems.(20)
|10.26   |  | Retention Agreement dated February 16, 2000,
	between Jay Caplan and Thermo Electron Corporation relating to
	Thoratec Cardiosystems.(20)                             
|10.27   |  | Addendum to Transition Agreement dated
	February 18, 2000, between R. Michael Kleine and Thermo
	Electron Corporation.(21)                                            
|10.28   |  | Addendum to Transition Agreement dated
	February 18, 2000, between Victor L. Poirier and Thermo
	Electron Corporation.(21)                                            
|10.29   |  | Employment Agreement by and between Thoratec and
	D. Keith Grossman, dated as of December 6, 2001.                                                                    
|21      |  | Subsidiaries of Thoratec.                                                                                                                                             
|23.1    |  | Independent Auditors Consent 
	Deloitte & Touche LLP.                                                                                                               
|23.2    |  | Independent Auditors Consent 
	Arthur Andersen LLP.                                                                                                                 
|24      |  | Power of Attorney  Reference is made
	to page 79 hereof.                                                                                                             



---



|    |                                                                                                                                                                                                                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Filed as an Exhibit with corresponding exhibit
	number to Thoratecs Registration Statement on
	Form S-1 (Registration No. 2-87293) and incorporated
	herein by reference. Amendment filed with the SEC on February
	28, 2001 as Exhibit 3.1 to the Companys current
	report filed on Form 8-K (File No. 033-72502) and
	incorporated herein by reference.
|   
|(2) | Filed as an Exhibit to Thoratec
	Cardiosystems Quarterly Report on Form 10-Q for the fiscal
	quarter ended June 28, 1997 and incorporated herein by
	reference.                                                                                                                                                                                           
|   
|(3) | Thoratec Cardiosystems Inc. merged with and into
	Thoratec Corporation on July 2, 2001.                                                                                                                                                                                                                                                                    
|   
|(4) | Filed as an Exhibit to Thoratecs Annual
	Report on Form 10-K for the fiscal year ended
	December 29, 1990 filed with the SEC on March 28,
	1991, and incorporated herein by reference.                                                                                                                                                                    
|   
|(5) | Filed as an Exhibit to Thoratec
	Cardiosystems Annual Report on Form 10-K for the
	fiscal year ended December 30, 1989 and incorporated herein
	by reference.                                                                                                                                                                                             
|   
|(6) | Filed as an Exhibit to Annex A to Thoratecs
	Registration Statement on Form S-4 filed with the SEC on
	December 29, 2000 (Registration No. 333-49120) and
	incorporated herein by reference.                                                                                                                                                              
|   
|(7) | Filed as an Exhibit to Thoratec
	Cardiosystems Registration Statement on Form S-1
	(Registration No. 33-25144) and incorporated herein by
	reference.                                                                                                                                                                                                     
|   
|(8) | Filed as an Exhibit to Thoratecs Annual
	Report on Form 10-K for the fiscal year ended
	December 30, 1989 filed with the SEC on March 30,
	1990, and incorporated herein by reference.                                                                                                                                                                    
|   
|(9) | Filed as an Exhibit to Thoratecs Annual
	Report on Form 10-K for the fiscal year ended
	January 2, 1993 filed with the SEC on March 22, 1993,
	and incorporated herein by reference.                                                                                                                                                                      



|     |                                                                                                                                                                                            
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Filed as an Exhibit to Thoratecs Annual
	Report on Form 10-K for the fiscal year ended
	January 1, 1994 filed with the SEC on March 22, 1994,
	and incorporated herein by reference.      
|    
|(11) | Filed as an Exhibit to Thoratec
	Cardiosystems Quarterly Report on Form 10-Q for the fiscal
	quarter ended July 3, 1993 and incorporated herein by
	reference.                            
|    
|(12) | Filed as an Exhibit to Thoratecs
	Registration Statement on Form S-8 filed with the SEC on
	September 12, 1996, (Registration No. 333-11883) and
	incorporated herein by reference.       
|    
|(13) | Filed as an Exhibit to Thoratecs
	Registration Statement on Form S-8 filed with the SEC on
	February 26, 2001 (Registration No. 333-56212), and
	incorporated herein by reference.        
|    
|(14) | Filed as an Exhibit to Thoratecs Quarterly
	Report on Form 10-Q for the fiscal quarter ended
	June 29, 1996, filed with the SEC on August 13, 1996,
	and incorporated herein by reference.
|    
|(15) | Filed as an Exhibit to Thoratecs Quarterly
	Report on Form 10-Q for the fiscal quarter ended
	June 28, 1997, filed with the SEC on July 30, 1997,
	and incorporated herein by reference.  

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|     |                                                                                                                                                                                                  
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(16) | Filed as an Exhibit to Thoratecs Quarterly
	Report on Form 10-Q for the fiscal quarter ended
	September 27, 1997 filed with the SEC on November 12,
	1997, and incorporated herein by reference.
|    
|(17) | Filed as an Exhibit to Thoratecs
	Registration Statement on Form S-3 filed with the SEC on
	January 24, 2002 (Registration No. 333-72128), and
	incorporated herein by reference.               
|    
|(18) | Filed as an Exhibit to Thoratec
	Cardiosystems Quarterly Report on Form 10-Q for the fiscal
	quarter ended July 3, 1999 and incorporated herein by
	reference.                                  
|    
|(19) | Filed as an Annex to Thoratecs Registration
	Statement on Form S-4, filed with the SEC on
	December 29, 2000 (Registration No. 333-72128), and
	incorporated herein by reference.               
|    
|(20) | Filed as an Exhibit to the Thoratec
	Cardiosystems Annual Report on Form 10-K for the fiscal
	year ended January 1, 2000 and incorporated herein by
	reference.                                 
|    
|(21) | Filed as an Exhibit to the Thoratec
	Cardiosystems Quarterly Report on Form 10-Q for the
	fiscal quarter ended September 30, 2000 and incorporated
	herein by reference.                        

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SIGNATURES

In accordance with Section 13 or
Section 15(d) of the Exchange Act, as amended, the
Registrant has duly caused this Form 10-K to be signed on
its behalf by the undersigned, thereunto duly authorized on this
14th day of March 2002.



| |                     
| | --------------------
| | THORATEC CORPORATION



| |     |                      
| | --- | ---------------------
| | By: | /s/ D. KEITH GROSSMAN

| |                        
| | -----------------------
| |                        
| | D. Keith Grossman      
| | Chief Executive Officer

Date: March 14, 2002

POWER OF ATTORNEY

In accordance with the Exchange Act, this report
has been signed below by the following persons on behalf of the
Thoratec Corporation and in the capacities and on the dates
indicated.

|                                                   |  |                                                                                                                                   |  |               
|-------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------- |  | --------------
|Signature                                          |  | Title                                                                                                                             |  | Date          
|                                                   |  |                                                                                                                                   |  |               
|/s/ D. KEITH GROSSMAND. Keith Grossman             |  | Chief Executive Officer,
        President and Director                                                                           |  | March 14, 2002
|/s/ HOWARD E. CHASEHoward E. Chase                 |  | Director                                                                                                                          |  | March 14, 2002
|/s/ J. DANIEL COLEJ. Daniel Cole                   |  | Director                                                                                                                          |  | March 14, 2002
|/s/ J. DONALD HILLJ. Donald Hill                   |  | Director and Chairman of the
        Board of Directors                                                                           |  | March 14, 2002
|/s/ WILLIAM M. HITCHCOCKWilliam M. Hitchcock       |  | Director                                                                                                                          |  | March 14, 2002
|/s/ GEORGE W. HOLBROOK, JR.George W. Holbrook, Jr. |  | Director                                                                                                                          |  | March 14, 2002
|/s/ THEO MELAS-KYRIAZITheo Melas-Kyriazi           |  | Director                                                                                                                          |  | March 14, 2002
|/s/ DANIEL M. MULVENADaniel M. Mulvena             |  | Director                                                                                                                          |  | March 14, 2002
|/s/ M. WAYNE BOYLSTONM. Wayne Boylston             |  | Senior Vice President, Chief Financial Officer
        and Secretary
        (Principal Financial
        and Accounting Officer) |  | March 14, 2002

79