<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[X] Quarterly report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 for the quarterly period ended September 30, 2000 or
[ ] Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 for the transition period from ________ to _________
COMMISSION FILE NUMBER: 1-8145
THORATEC LABORATORIES CORPORATION
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 94-2340464
------------------------------------------------ --------------------
(State or other jurisdiction of incorporation or (I.R.S. Employer
organization) Identification No.)
6035 Stoneridge Drive, Pleasanton, California 94588
--------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (925) 847-8600
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
As of November 10, 2000 registrant had 22,420,975 shares of common stock
outstanding.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THORATEC LABORATORIES CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
Period End
---------------------------------------------
Fiscal September 2000 Fiscal Year End 1999
--------------------- --------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 5,853,437 $ 1,696,522
Short-term investments available-for-sale 12,444,164 276,464
Receivables 4,931,223 5,453,187
Inventories (Note 3) 8,920,237 6,611,487
Prepaid expenses and other 501,061 425,317
------------ ------------
Total Current Assets 32,650,122 14,462,977
Equipment and Improvements - net 9,123,751 9,560,814
Other Assets 1,063,689 1,036,647
------------ ------------
TOTAL ASSETS $ 42,837,562 $ 25,060,438
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 3,336,000 $ 1,703,089
Accrued compensation 1,931,536 1,466,147
Deferred distributor revenue (Note 4) 284,765 284,765
Other 492,729 475,870
------------ ------------
Total Current Liabilities 6,045,030 3,929,871
Long-term deferred distributor revenue (Note 4) 640,721 854,294
------------ ------------
Total Liabilities 6,685,751 4,784,165
------------ ------------
Shareholders' Equity:
Common shares, 100,000,000 authorized;
issued and outstanding 22,418,840 in 2000
and 20,466,326 in 1999 89,749,996 72,911,638
Additional capital 2,541,223 2,541,223
Accumulated deficit (56,057,967) (55,191,216)
Accumulated other comprehensive income (loss):
Cumulative translation adjustments (81,441) 14,628
------------ ------------
Total Shareholders' Equity 36,151,811 20,276,273
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 42,837,562 $ 25,060,438
============ ============
</TABLE>
See notes to condensed consolidated financial statements
2
<PAGE> 3
THORATEC LABORATORIES CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Fiscal Nine Months Ended Fiscal
September September
------------------------------- -------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Product sales $ 6,194,459 $ 5,075,597 $ 21,061,316 $ 15,342,748
Cost of product sales 2,221,327 2,324,527 7,714,165 6,333,291
------------ ------------ ------------ ------------
Gross profit 3,973,132 2,751,070 13,347,151 9,009,457
Operating expenses:
Research and development 1,808,099 1,451,721 5,286,424 3,882,796
Selling, general and
administrative 2,528,321 2,357,533 7,958,221 6,938,381
Merger related expenses (Note 8) 1,846,727 -- 1,846,727 --
------------ ------------ ------------ ------------
Total operating expenses 6,183,147 3,809,254 15,091,372 10,821,177
------------ ------------ ------------ ------------
Other operating income (Note 4) 71,192 71,191 545,177 213,573
------------ ------------ ------------ ------------
Loss from operations (2,138,823) (986,993) (1,199,044) (1,598,147)
Interest and other income - net
(Note 1) 272,055 86,073 409,228 315,821
------------ ------------ ------------ ------------
Loss before taxes (1,866,768) (900,920) (789,816) (1,282,326)
Income tax expense (Note 7) 2,487 1,334 76,935 8,440
------------ ------------ ------------ ------------
Net loss $ (1,869,255) $ (902,254) $ (866,751) $ (1,290,766)
============ ============ ============ ============
Loss per share: (Note 6)
Basic and Diluted $ (0.08) $ (0.04) $ (0.04) $ (0.06)
Shares used to compute loss per
share: (Note 6)
Basic and Diluted 22,386,921 20,455,018 21,634,134 20,439,394
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
THORATEC LABORATORIES CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Fiscal September
----------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (866,751) $ (1,290,766)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Amortization of deferred distributor revenue (213,573) (213,573)
Common stock options granted for services 45,244
Loss on disposal of capital assets 66,312 2,034
Depreciation and amortization 978,951 761,512
Changes in assets and liabilities:
Receivables 408,153 (410,666)
Prepaid expenses and other (77,431) 103,628
Inventories (2,394,752) (1,762,145)
Other assets (27,443) 779,428
Accounts payable and other liabilities 2,233,863 (282,406)
Deferred distributor revenue -- 1,423,823
------------ ------------
Net cash provided by (used in) operating
activities 107,329 (843,887)
------------ ------------
Cash flows from investing activities:
Purchases of short-term investments
available-for-sale (58,795,849) (6,723,256)
Maturities of short-term investments
available-for-sale 46,343,934 5,284,000
Sales of short-term investments available-for-sale 284,215 1,349,272
Capital expenditures (622,233) (543,601)
------------ ------------
Net cash used in investing activities (12,789,933) (633,585)
------------ ------------
Cash flows from financing activities:
Net proceeds from public offering of common stock 15,708,056 --
Common stock issued upon exercise of options 1,172,802 98,567
------------ ------------
Net cash provided by financing activities 16,880,858 98,567
------------ ------------
Effect of exchange rate changes on cash (41,339) (18,905)
------------ ------------
Net increase (decrease) in cash and cash equivalents 4,156,915 (1,397,810)
Cash and cash equivalents at beginning of period 1,696,522 2,712,686
------------ ------------
Cash and cash equivalents at end of period $ 5,853,437 $ 1,314,876
============ ============
Noncash Investing Transaction:
Capital assets in accounts payable $ 83,806 $ 67,078
Noncash Financing Transaction:
Deferred financing charges in accounts payable $ 42,500 --
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
THORATEC LABORATORIES CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Fiscal September Fiscal September
----------------------------- -----------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net loss $(1,869,255) $ (902,254) $ (866,751) $(1,290,766)
Other net comprehensive income:
Unrealized gain (loss) on securities -- 585 -- (1,953)
Foreign currency translation adjustments (66,505) 183,592 (96,069) (45,787)
----------- ----------- ----------- -----------
Comprehensive loss $(1,935,760) $ (718,077) $ (962,820) $(1,338,506)
=========== =========== =========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
THORATEC LABORATORIES CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The interim condensed consolidated financial statements presented have
been prepared by us without audit and, in our opinion, reflect all
adjustments necessary (consisting only of normal recurring adjustments)
to present fairly the financial position, results of operations and cash
flows at September 30, 2000 (third quarter 2000) and for the three and
nine-month periods ended September 30, 2000 (third quarter and first
nine months of 2000) and the three and nine-month periods ended October
2, 1999 (third quarter and first nine months of 1999). The results of
operations for any interim period are not necessarily indicative of
results for a full year.
The condensed consolidated balance sheet presented as of the end of
1999 (January 1, 2000) has been derived from the condensed consolidated
financial statements that have been audited by our independent public
accountants. The consolidated financial statements and notes are
presented as permitted by the Securities and Exchange Commission and
do not contain certain information included in our annual consolidated
financial statements and notes. We suggest that the accompanying
condensed consolidated financial statements be read in conjunction with
the audited consolidated financial statements and the notes thereto
contained in our Annual Report on Form 10-K for the 1999 fiscal year,
which have been filed with the Securities and Exchange Commission.
The preparation of our consolidated financial statements in conformity
with generally accepted accounting principles necessarily requires us to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the consolidated balance sheet dates and the reported
amounts of revenues and expenses for the periods presented.
All assets and liabilities of our non-United States operations are
translated into United States dollars at the fiscal period-end exchange
rates, and, except as follows, the resulting translation adjustments are
included in comprehensive income. Exchange rate fluctuations resulting
from the period-end translation of the current portion of the
intercompany obligation of our wholly owned subsidiary into United
States dollars are recorded in the income statement as foreign currency
exchange gains or losses and are included in interest and other income.
Net foreign currency exchange loss was approximately $68,000 in the
third quarter 2000, approximately $269,000 in the first nine months of
2000, and zero for both the third quarter 1999 and the first nine months
of 1999.
The calculation of diluted EPS takes into account the effect of dilutive
instruments, such as stock options and warrants, and uses the average
share price for the period in determining the number of incremental
shares that are to be added to the weighted average number of shares
outstanding. Diluted EPS for all periods presented excludes the effect
of any such instruments, as their inclusion would be anti-dilutive.
We have made certain reclassifications to the 1999 amounts to conform to
the 2000 presentation.
6
<PAGE> 7
2. RECENTLY ISSUED ACCOUNTING STANDARDS
During June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities", which defines
derivatives, requires that all derivatives be carried at fair value, and
provides for hedge accounting when certain conditions are met. Such
Statement is effective for all fiscal quarters of fiscal years beginning
after June 15, 2000. We will implement this standard in the fiscal year
beginning December 31, 2000. We have not yet completed our evaluation
of the impact of the adoption of the new standard, however, we do not
expect that this will have a material impact on our financial
statements.
In December 1999 the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101 "Revenue Recognition in Financial
Statements" which summarizes certain of the staff's views in applying
generally accepted accounting principles to revenue recognition in
financial statements. In addition, on October 13, 2000, the SEC issued a
Frequently Asked Questions ("FAQ") document which clarified and
elaborated the SEC staff's views regarding revenue recognition. We will
adopt this statement in the fourth fiscal quarter of our fiscal year
ending December 30, 2000. We do not expect any material impact as a
result of adopting the guidelines of this standard.
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, Accounting for Certain Transactions Involving
Stock Compensation (FIN 44), that clarifies guidance for certain issues
related to the application of APB Opinion No. 25, Accounting for Stock
Issued to Employees (APB 25). Such statement is effective for all new
awards and modifications after June 30, 2000. The implementation of this
standard has not resulted in any material impact to our financial
records.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
Period Ended
-----------------------------------
Third Quarter 2000 Year End 1999
------------------ -------------
<S> <C> <C>
Finished goods $5,402,676 $3,163,055
Work in process 1,863,182 2,033,194
Raw materials 1,654,379 1,415,238
---------- ----------
Total $8,920,237 $6,611,487
========== ==========
</TABLE>
7
<PAGE> 8
4. LICENSE AGREEMENT AND DISTRIBUTION AGREEMENT
In the first quarter of 2000, we amended the license granted to Gambro,
Inc., formerly known as COBE Laboratories, Inc., to be a fully paid-up,
world-wide, irrevocable field-of-use license and sublicense (with the
right to sublicense others) for our biomaterials to be used in some of
Gambro's products. The original license was granted in 1992 and was for
use in renal dialysis devices, blood component devices and blood tubing
sets and accessories used in direct connection with any of these. We
received a one-time payment of approximately $330,000 in the first
quarter of 2000 in conjunction with this amendment, which is included in
other operating income in the first quarter of 2000. Thoratec has no
continuing obligation to Gambro under this license agreement.
During the first quarter of 1999, we entered into a five-year
distribution agreement with Guidant Corporation. Under the terms of the
agreement, Guidant receives exclusive worldwide marketing and
distribution rights to our Vectra(TM) vascular access graft product
line, except in Japan. In exchange for these rights, Guidant made a $1.5
million non-refundable payment in the first quarter of 1999, and will
pay up to an additional $2 million when the Vectra product line receives
FDA approval for use in the United States. In the first quarter of 1999,
we began recognizing the $1.5 million contract payment ratably over the
five-year life of the contract. Other operating income in 2000 and 1999
include approximately $71,000 of such payment amortization in each of
the first three quarters.
5. PUBLIC OFFERING
In April 2000, we sold, through an underwritten public offering,
2,000,000 shares of common stock at $10.00 per share. Included in the
2,000,000 shares were 500,000 shares offered by Gambro Inc., a major
shareholder of our company, for which we received no proceeds. In
addition, the underwriters exercised a 30-day option to purchase from us
and Gambro 300,000 shares of common stock to cover any over-allotments,
of which the proceeds from 225,000 shares were received by us. After
deducting underwriting discounts of approximately $983,000, we received
a total of $16,267,000, from which approximately $600,000 in
offering-related costs have been paid. Underwriting discounts and the
other estimated offering-related costs were recorded as an offset to
common stock at the closing of the offering. We intend to use the net
proceeds for clinical trials of products under development, expansion of
our sales and marketing capabilities, research and development,
potential acquisitions of complementary technology, working capital and
other general corporate purposes.
8
<PAGE> 9
6. LOSS PER SHARE
Basic earnings per share are computed by dividing net 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. Diluted earnings per share for
all periods presented exclude any effect from such securities as their
inclusion would be antidilutive, therefore, diluted earnings per share
is the same as basic earnings per share for all periods presented.
Basic and diluted loss per share were calculated as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------------- ---------------------------------
September 2000 September 1999 September 2000 September 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net loss $ (1,869,255) $ (902,254) $ (866,751) $ (1,290,766)
Weighted average common
shares outstanding - basic
and diluted 22,386,891 20,455,018 21,634,124 20,439,394
Basic and diluted loss per
common share $ (0.08) $ (0.04) $ (0.04) $ (0.06)
</TABLE>
7. INCOME TAXES
The provision for income taxes was approximately $2,500 and $77,000 for
the three and nine-month periods ended fiscal September 2000 and
represents federal alternative minimum, state and local taxes. The
provision for income taxes was approximately $1,300 and $8,400 for the
three and nine-month periods ended fiscal September 1999 and represents
state and local taxes.
8. SUBSEQUENT EVENT
On October 3, 2000 we signed a definitive agreement to acquire Thermo
Cardiosystems, a Massachusetts-based manufacturer of cardiac assist,
blood coagulation and skin incision devices. The transaction is a
stock-for-stock transaction, accounted for as a reverse acquisition
purchase in which Thermo Cardiosystem is treated as the acquirer of
Thoratec for financial reporting purposes, and will be
treated as a tax-free exchange. Under the terms of the agreement, each
outstanding share of Thermo Cardiosystems stock will be exchanged for
0.835 shares of newly issued Thoratec stock. Following completion of the
transaction, current Thoratec shareholders will own approximately 43
percent of the proforma shares outstanding. Thermo Electron Corporation,
the parent company of Thermo Cardiosystems, will receive shares
representing approximately 34 percent of the proforma shares
outstanding, which will be subject to certain contractual lock-up
provisions. Completion of the merger transaction is subject to approval
by the shareholders of Thoratec, the shareholders of Thermo
Cardiosystems, and certain governmental regulatory agencies. If such
approvals are not received by March 1, 2001, either party may withdraw
from the agreement without penalty.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Liquidity and Capital Resources
At the end of September 2000 we had working capital of $26.6 million compared
with $10.5 million at the end of 1999. Cash, cash equivalents, and short-term
investments available for sale increased $16.3 million to $18.3 million
principally due to net proceeds received from our April 2000 public sale of
common stock of $15.7 million, a $350,000 license payment from Gambro, Inc.,
discussed below, and $1.2 million from stock option exercises, less capital
expenditures of $622,000. Accounts receivable decreased due to lower product
sales in the third quarter 2000 as compared to the fourth quarter of 1999.
Inventories increased $2.3 million to $8.9 million due to lower than expected
sales in the quarter in addition to preparation for planned increases in product
sales and a higher number of units available for our rent-to-own program.
Current liabilities increased $2.1 million to $6.0 million, principally from
liabilities incurred to outside consultants related to our planned merger with
Thermo CardioSystems Inc., discussed below.
In the first quarter of 2000, we amended the license granted to Gambro, Inc.,
formerly known as COBE Laboratories, Inc., to be a fully paid-up, world-wide,
irrevocable field-of-use license and sublicense (with the right to sublicense
others) for our biomaterials to be used in some of Gambro's products. The
original license was granted in 1992 and was for use in renal dialysis devices,
blood component devices and blood tubing sets and accessories used in direct
connection with any of these. We received a one-time payment of approximately
$330,000 in the first quarter of 2000 in conjunction with this amendment, which
is included in other operating income in the first quarter of 2000. Thoratec has
no continuing obligation to Gambro under this license agreement.
In April 2000, we sold, through an underwritten public offering, 2,000,000
shares of common stock at $10.00 per share. Included in the 2,000,000 shares
were 500,000 shares offered by Gambro Inc., a major shareholder of our company,
for which we received no proceeds. In addition, the underwriters exercised a
30-day option to purchase from us and Gambro 300,000 shares of common stock to
cover over-allotments, of which the proceeds from 225,000 shares were received
by us. After deducting underwriting discounts of approximately $983,000, we
received a total of $16,267,000, from which approximately $600,000 in
offering-related costs have been paid. Underwriting discounts and the other
estimated offering-related costs were recorded as an offset to common stock at
the closing of the offering.
On October 3, 2000 we signed a definitive agreement to acquire Thermo
Cardiosystems, a Massachusetts-based manufacturer of cardiac assist, blood
coagulation and skin incision devices. The transaction is a stock-for-stock
transaction, accounted for as a reverse acquisition purchase in which Thermo
Cardiosystems is treated as the acquirer of Thoretec for financial reporting
purposes, and will be treated as a tax-free exchange. Under the terms of the
agreement, each outstanding share of Thermo Cardiosystems stock will be
exchanged for 0.835 shares of newly issued Thoratec stock. Following completion
of the transaction, current Thoratec shareholders will own approximately 43
percent of the proforma shares outstanding. Thermo Electron Corporation, the
parent company of Thermo Cardiosystems, will receive shares representing
approximately 34 percent of the proforma shares outstanding, which will be
subject to certain contractual lock-up provisions. Completion of the merger
transaction is subject to approval by the shareholders of Thoratec, the
shareholders of Thermo Cardiosystems, and certain governmental regulatory
agencies. If such approvals are not received by March 1, 2001, either party may
withdraw from the agreement without penalty.
10
<PAGE> 11
We believe that expected cash flow from operations, in conjunction with the
proceeds of the public offering, will be sufficient to fund our operations for
at least the next twelve months. We expect that our operating expenses will
increase in future periods as we spend more on product manufacturing, marketing
and research and development of new product lines as well as substantial costs
associated with completing the merger transaction with Thermo Cardiosystems.
We do not expect that inflation will have a material impact on our operations.
11
<PAGE> 12
Results of Operations
Third quarter 2000 and 1999
Product sales in the third quarter of 2000 were $6.2 million compared to $5.1
million in the third quarter of 1999, an increase of approximately $1.1 million
or 22%. The increase is attributable to sales of our VAD System disposable blood
pumps and cannulae, which increased to approximately $5.2 million in the third
quarter of 2000 from $4.2 million in the third quarter of 1999, an increase of
approximately $1.0 million or 24%. The growth of sales in VAD disposables was
primarily attributable to a 19% increase in the average selling prices of our
VAD pump, and an increase in the number VAD pumps sold. The total number of
centers using our VAD System increased to 155 at the end of the third quarter of
2000 from 117 at the end of the third quarter of 1999.
Gross profit was $4.0 million, representing approximately 64% of product sales
for the third quarter of 2000 compared to a gross profit of $2.8 million
representing approximately 54% of product sales for the third quarter of 1999.
The increase in gross profit percentage was due to higher average selling prices
for the VAD pumps in addition to a higher proportion of VAD System disposables
being sold in the United States in the third quarter of 2000 compared to the
third quarter of 1999. VAD disposable products sold in the United States
generally have a higher gross margin than those sold in the rest of the world.
Research and development expenses were approximately 29% of product sales in the
third quarters of both 2000 and 1999. These expenses increased to $1.8 million
in the third quarter of 2000 from $1.5 million in the third quarter of 1999, an
increase of $356,000, or 25%. Of the total increase in research and development
expenses, $161,000 was due to continued development activities for our TLC-II
portable driver, and $120,000 was due to indirect engineering and manufacturing
expenses, representing higher overall facilities expenses and higher levels of
support from quality assurance and manufacturing personnel.
Selling, general and administrative expenses increased to $2.5 million in the
third quarter of 2000, from $2.4 million in the third quarter of 1999, an
increase of $171,000 or 7%. As a percent of sales, these expenses decreased from
46% of sales in third quarter 1999 to 41% of sales in third quarter 2000. The
increase is due to $367,000 higher selling and marketing expenses associated
with the continued development of the domestic and European sales organizations
and other promotional activities, partially offset by lower consulting and legal
expenses.
Merger related expenses were $1.8 million and were comprised of external costs
associated directly with the merger transaction. These costs are principally
related to outside consulting, accounting, and legal expenses. Net income in the
third quarter of 2000, exclusive of merger costs, would have been approximately
$23,000 or $0.00 per share.
Interest and other income in the third quarter of 2000 increased from the third
quarter of 1999, with $261,000 higher interest income resulting from higher cash
balances offset by $68,000 of foreign currency exchange losses.
12
<PAGE> 13
Nine months ended September 2000 and September 1999
Product sales for the nine-month period ended September 2000 were $21.1 million
compared to $15.3 million for the nine-month period ended September 1999, an
increase of approximately $5.7 million or 37%. The increase is attributable to
sales of our VAD System disposable blood pumps and cannulae, which increased to
approximately $18.1 million in the nine-month period ended September 2000 from
$12.4 million in the nine-month period ended September 1999, an increase of
approximately $5.7 million or 46%. The growth of sales in VAD disposables was
primarily attributable to a 36% increase in the number of VAD pumps sold. An
increase in the average selling price of our domestic VAD pumps also contributed
to the increase in revenue as compared to the same nine-month period of last
year.
Gross profit was $13.3 million, representing approximately 63% of product sales
for the nine-month period ended September 2000 compared to a gross profit of
$9.0 million representing approximately 59% of product sales for the nine-month
period ended September 1999. The increase in gross profit percentage was due to
a higher average selling price for our domestic VAD pump and a higher proportion
of VAD System disposables being sold in the United States in the nine-month
period ended September 2000 as compared to the nine-month period ended September
1999. VAD disposable products sold in the United States generally have a higher
gross margin than those sold in the rest of the world because the average
selling price of VAD pumps sold in the United States is higher. Partially
offsetting the favorable geographic sales mix and higher domestic average
selling prices for the VAD System disposables was approximately $423,000 in
higher manufacturing, service and retrofitting costs associated with a change in
a component used in our TLC-II portable driver.
Research and development expenses increased to $5.3 million in the nine-month
period ended September 2000, from $3.9 million in the nine-month period ended
September 1999, an increase of $1.4 million or 36%, representing 25% of product
sales for both 2000 and 1999. Of the total increase in research and development
expenses, $197,000 was due to increased research spending for the implantable
version of our ventricular assist device, $213,000 was due to graft products,
$433,000 was due to the TLC-II, and $497,000 was due to indirect engineering and
manufacturing expenses, representing higher overall facilities expenses and
higher levels of support from quality assurance and manufacturing personnel.
Selling, general and administrative expenses increased to $8.0 million in the
nine-month period ended September 2000, representing 38% of sales, from $6.9
million in the nine-month period ended September 1999, representing 45% of
sales, an increase of $1.0 million or 15%. Of the total increase in selling,
general, and administrative expenses, $945,000 is associated with the continued
development of the domestic and European sales organizations and other
promotional activities, and $75,000 is associated with various administrative
expenses, principally related to increased personnel expenses and higher
expenses related to our annual report to shareholders and other year-end
statutory reports.
Merger related expenses were $1.8 million and were comprised of external costs
associated directly with the merger transaction. These costs are principally
related to outside consulting, accounting, and legal expenses. Net income in the
first nine months of 2000, exclusive of merger costs, would have been
approximately $980,000, or $0.05 per share.
Interest and other income in the nine-month period ended September 2000
increased $93,000 from the nine-month period ended September 1999 and was
principally due to $401,000 higher interest income resulting from higher cash
balances partially offset by $269,000 of foreign exchange losses and $48,000 of
lower grant revenue.
13
<PAGE> 14
Forward-Looking Statements
The statements in this report that relate to future plans, events or performance
are forward-looking statements which involve risks and uncertainties. These
risks include those related to our proposed transaction with Thermo
Cardiosystems, the results of clinical trials, government regulatory approval
processes, delays in product development and new product introductions,
announcements by our competitors, an intensely competitive market, and market
acceptance of new products. Completion of the merger transaction is subject to
approval by the shareholders of Thoratec, the Shareholders of Thermo
Cardiosystems, and certain governmental and other regulatory agencies. If such
approvals are not received by March 1, 2001, either party may withdraw from the
agreement without penalty. There can be no assurance that we will receive all
necessary approvals before the date specified in the merger agreement, it at
all.
These factors, and others, are discussed more fully in our annual report on Form
10-K for 1999 and our other filings with the Securities and Exchange Commission.
Actual results, events or performance may differ materially. These
forward-looking statements 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
We do not currently use derivative financial instruments in our operations or
investment portfolio. We do not have material exposure to market risk associated
with changes in interest rates as we have no long-term debt obligations or
long-term investments outstanding. Our investment portfolio at the end of 1999
consisted of short-term corporate debt instruments and Federal government agency
debt instruments that were classified as available-for-sale. The weighted
average maturity of our investment portfolio was less than 90 days in 1999. Our
investment portfolio at the end of the third quarter of 2000 had a weighted
average maturity of 14 days and consisted primarily of state and municipal
government bonds. We do not expect to be subject to material interest rate risk
with respect to our short-term investments. We do not believe we have any other
material exposure to market risk associated with interest rates.
We conduct business in foreign countries. Our international operations consist
primarily of sales and service personnel for our VAD System. These 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-United States
operations are translated into United States dollars at the fiscal period-end
exchange rates, and, except as follows, the resulting translation adjustments
are included in comprehensive income. Exchange rate fluctuations resulting from
the period-end translation of the current portion of the intercompany obligation
of our wholly owned subsidiary into United States dollars are recorded in the
income statement as foreign currency exchange gains or losses and are included
in interest and other income. Net foreign currency exchange loss was
approximately $68,000 in the third quarter 2000, approximately $269,000 in the
first nine months of 2000, and zero for both the third quarter 1999 and the
first nine months of 1999.
Although 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 forward exchange
contracts or other derivative financial instruments to hedge the effects of
adverse fluctuations in foreign currency exchange.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K
See Exhibit Index on the page immediately preceding exhibits.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
THORATEC LABORATORIES CORPORATION
Date: November 13, 2000 /s/ D. Keith Grossman
------------------- ----------------------------------------------
D. Keith Grossman, Chief Executive Officer
Date: November 13, 2000 /s/ Cheryl D. Hess
------------------- ----------------------------------------------
Cheryl D. Hess, Chief Financial Officer
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EXHIBIT INDEX
Exhibit Number Document
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27 Financial Data Schedule
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