PAGE
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 Quarter Ended September 30, 1995.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Commission File Number 1-10114
THERMO CARDIOSYSTEMS INC.
(Exact name of Registrant as specified in its charter)
Massachusetts 04-3027040
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
470 Wildwood Street, P.O. Box 2697
Woburn, Massachusetts 01888-2697
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 622-1000
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the
issuer's classes of Common Stock, as of the latest practicable
date.
Class Outstanding at October 27, 1995
---------------------------- -------------------------------
Common Stock, $.10 par value 23,660,296
PAGE
<PAGE>
Form 10-Q
September 30, 1995
THERMO CARDIOSYSTEMS INC.
PART I - Financial Information
Item 1 - Financial Statements
(a) Balance Sheet - Assets as of September 30, 1995 and December 31, 1994
(In thousands) (Unaudited)
September 30, 1995 December 31, 1994
------------------ -----------------
Current Assets:
Cash and cash equivalents $ 1,617 $ 9,378
Short-term available-for-sale
investments, at quoted market
value (amortized cost of $38,113
and $29,978) 38,626 29,585
Accounts receivable, less allowances
of $281 and $225 5,740 4,256
Inventories:
Raw materials 1,762 3,123
Work in process 3,214 836
-------- --------
50,959 47,178
-------- --------
Machinery, Equipment and Leasehold
Improvements, at Cost 2,643 1,841
Less: Accumulated depreciation
and amortization 1,300 899
-------- --------
1,343 942
-------- --------
Long-term Available-for-sale
Investments, at Quoted Market
Value (amortized cost of $48,178
and $46,863) 48,551 45,426
-------- --------
Long-term Prepaid Income Taxes - 379
-------- --------
Other Assets 576 939
-------- --------
$101,429 $ 94,864
======== ========
The accompanying notes are an integral part of these financial statements.
2PAGE
<PAGE>
Form 10-Q
September 30, 1995
THERMO CARDIOSYSTEMS INC.
(a) Balance Sheet - Liabilities and Shareholders' Investment as of
September 30, 1995 and December 31, 1994 (In thousands except share
amounts) (Unaudited)
September 30, 1995 December 31, 1994
------------------ -----------------
Current Liabilities:
Accounts payable $ 1,352 $ 800
Accrued payroll and employee benefits 596 507
Accrued income taxes 929 613
Deferred revenue - 258
Other accrued expenses 305 323
Due to parent company and Thermo
Electron Corporation 284 556
-------- --------
3,466 3,057
-------- --------
Deferred Income Taxes 131 -
-------- --------
Long-term Obligations:
Noninterest-bearing subordinated
convertible debentures 22,100 33,000
5 1/2% Subordinated convertible notes - 450
-------- --------
22,100 33,450
-------- --------
Shareholders' Investment:
Common stock, $.10 par value, 50,000,000
shares authorized; 23,581,645 and
22,878,202 shares issued 2,358 2,288
Capital in excess of par value 68,613 57,081
Retained earnings 5,980 1,266
Treasury stock at cost, 42,106 and
46,204 shares (1,794) (1,089)
Net unrealized gain (loss) on available-
for-sale investments 575 (1,189)
-------- --------
75,732 58,357
-------- --------
$101,429 $ 94,864
======== ========
The accompanying notes are an integral part of these financial statements.
3PAGE
<PAGE>
Form 10-Q
September 30, 1995
THERMO CARDIOSYSTEMS INC.
(b) Statement of Income for the three months ended September 30, 1995 and
October 1, 1994 (In thousands except per share amounts) (Unaudited)
Three Months Ended
------------------------------------
September 30, 1995 October 1, 1994
------------------ ---------------
Revenues $ 5,068 $ 2,524
------- -------
Costs and Operating Expenses:
Cost of revenues 2,173 1,287
Selling, general and administrative expenses 857 768
Expenses for research and development 771 875
------- -------
3,801 2,930
------- -------
Operating Income (Loss) 1,267 (406)
Interest Income 1,281 1,051
Interest Expense (60) (87)
Gain on Sale of Investments 37 -
------- -------
Income Before Provision for Income Taxes 2,525 558
Provision for Income Taxes 634 171
------- -------
Net Income $ 1,891 $ 387
======= =======
Earnings per Share $ .08 $ .02
======= =======
Weighted Average Shares 24,915 24,650
======= =======
The accompanying notes are an integral part of these financial statements.
4PAGE
<PAGE>
Form 10-Q
September 30, 1995
THERMO CARDIOSYSTEMS INC.
(b) Statement of Income for the nine months ended September 30, 1995 and
October 1, 1994 (In thousands except per share amounts) (Unaudited)
Nine Months Ended
------------------------------------
September 30, 1995 October 1, 1994
------------------ ---------------
Revenues $15,049 $ 6,897
------- -------
Costs and Operating Expenses:
Cost of revenues 6,441 3,647
Selling, general and administrative expenses 2,929 2,012
Expenses for research and development 2,507 2,566
------- -------
11,877 8,225
------- -------
Operating Income (Loss) 3,172 (1,328)
Interest Income 3,730 3,123
Interest Expense (225) (183)
Gain on Sale of Investments 37 97
------- -------
Income Before Provision for Income Taxes 6,714 1,709
Provision for Income Taxes 2,000 603
------- -------
Net Income $ 4,714 $ 1,106
======= =======
Earnings per Share $ .19 $ .04
======= =======
Weighted Average Shares 24,815 24,612
======= =======
The accompanying notes are an integral part of these financial statements.
5PAGE
<PAGE>
Form 10-Q
September 30, 1995
THERMO CARDIOSYSTEMS INC.
(c) Statement of Cash Flows for the nine months ended September 30, 1995
and October 1, 1994 (In thousands) (Unaudited)
Nine Months Ended
------------------------------------
September 30, 1995 October 1, 1994
------------------ ---------------
Operating Activities:
Net income $ 4,714 $ 1,106
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization 683 372
Provision for losses on accounts
receivable 90 120
Gain on sale of investments (37) (97)
Changes in current accounts:
Accounts receivable (1,574) (1,854)
Inventories and unbilled contract
costs and fees (1,017) (169)
Prepaid income taxes - 486
Accounts payable 552 140
Other current liabilities (1,339) (816)
-------- --------
Net cash provided by (used in) operating
activities 2,072 (712)
-------- --------
Investing Activities:
Proceeds from sale and maturities of
available-for-sale investments 54,771 18,215
Purchases of available-for-sale investments (64,184) (50,252)
Purchases of machinery, equipment and
leasehold improvements (802) (238)
Other (100) (100)
-------- --------
Net cash used in investing activities (10,315) (32,375)
-------- --------
Financing Activities:
Net proceeds from issuance of Company
common stock 482 518
Net proceeds from issuance of subordinated
convertible debentures - 31,968
-------- --------
Net cash provided by financing activities 482 32,486
-------- --------
Decrease in Cash and Cash Equivalents (7,761) (601)
Cash and Cash Equivalents at Beginning
of Period 9,378 892
-------- --------
Cash and Cash Equivalents at End of Period $ 1,617 $ 291
======== ========
Cash Paid For:
Interest $ 29 $ 36
Income taxes $ 2,126 $ 116
Noncash Financing Activities:
Conversions of convertible obligations $ 11,350 $ 150
The accompanying notes are an integral part of these financial statements.
6PAGE
<PAGE>
Form 10-Q
September 30, 1995
THERMO CARDIOSYSTEMS INC.
(d) Notes to Financial Statements - September 30, 1995
1. General
The interim financial statements presented have been prepared by
Thermo Cardiosystems Inc. (the Company) without audit and, in the opinion
of management, reflect all adjustments of a normal recurring nature
necessary for a fair statement of (a) the results of operations for the
three- and nine-month periods ended September 30, 1995 and October 1, 1994,
(b) the financial position at September 30, 1995, and (c) the cash flows
for the nine-month periods ended September 30, 1995 and October 1, 1994.
Interim results are not necessarily indicative of results for a full year.
The balance sheet presented as of December 31, 1994, has been derived
from the financial statements that have been audited by the Company's
independent public accountants. The financial statements and notes are
presented as permitted by Form 10-Q and do not contain certain information
included in the annual financial statements and notes of the Company. The
financial statements and notes included herein should be read in
conjunction with the financial statements and notes included in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1994, filed with the Securities and Exchange Commission.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
The Company is a leader in the research and development of both an
air-driven and an electrical implantable left ventricular-assist system
(LVAS). The Company is also the only company with U.S. Food and Drug
Administration (FDA) approval to commercially market an implantable LVAS.
Each of the Company's systems is designed to perform substantially all or
part of the pumping function of the left ventricle of the natural heart for
patients suffering from cardiovascular disease. Unlike total artificial
heart systems, which require removal of the natural heart, an LVAS allows
the natural heart to be left in place, preserving the heart's biological
control mechanisms.
In October 1994, the Company announced that the FDA granted approval
for the commercial sale in the U.S. of the air-driven LVAS. The electric
version of the LVAS, which is currently being used in clinical trials in
the U.S. for patients awaiting heart transplants, received the European
Conformity Mark (CE Mark) in August 1995, allowing commercial sale in all
European Community countries. The portable driver for the air-driven LVAS
was granted the CE Mark in early 1995. Until the Company's electric LVAS
receives FDA commercial approval, sales of the electric LVAS will fluctuate
depending upon the number of implants performed in ongoing studies at
approved clinical sites and the number of implementation programs sold.
7PAGE
<PAGE>
Form 10-Q
September 30, 1995
THERMO CARDIOSYSTEMS INC.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Overview (continued)
In general, a profit cannot be earned from the sale of an LVAS until
approval of the device has been received from the FDA for commercial sales.
Until such approval is obtained, only the direct and indirect costs of the
LVAS can be recovered, which are included in the Company's revenues. With
the FDA's approval of the air-driven LVAS, the Company began earning a
profit on the sale of such systems commencing in the fourth quarter of
1994.
The Company derives its revenues from two types of sales:
implementation programs and subsequent implants. Implementation programs
consist of initial sales to new clinical centers or foreign distributors,
as well as sales of a new system, such as the electric LVAS, to an existing
customer. Revenues recorded from subsequent implants consist of sales to an
existing customer of systems other than new systems. In general, the
Company receives greater revenues from the sale of an implementation
program than from a subsequent implant.
Results of Operations
Third Quarter 1995 Compared With Third Quarter 1994
---------------------------------------------------
Revenues in the third quarter of 1995 increased 101% to $5,068,000
from $2,524,000 in the third quarter of 1994. Revenues increased
approximately 55% due to the effect of a price increase that was phased in
during the fourth quarter of 1994 and the first two quarters of 1995, and
due to an increase in the number of air-driven and electric LVAS implants.
The number of LVAS units shipped during the third quarter of 1995 increased
37% compared with the third quarter of 1994. The number of implementation
programs sold in the third quarter of 1995 was comparable to those sold in
1994.
In July 1995, the Company instituted a voluntary recall of an inflow
valve conduit used in its LVAS. The recall was instituted after the Company
determined that, on several occasions, one of the valve components may have
abraded the valve conduit material, causing a blood leak. While the recall
did not result in the suspension of sales of the LVAS, the Company believes
that the recall temporarily impacted orders and total sales for the third
quarter. Sales for the months of July and August were low, with July having
the lowest monthly sales since commercialization, while sales in September
were the highest ever attained. Although the Company believes that it has
corrected this problem with the inflow valve conduit, no assurance can be
given that similar problems will not arise in the future.
8PAGE
<PAGE>
Form 10-Q
September 30, 1995
THERMO CARDIOSYSTEMS INC.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Third Quarter 1995 Compared With Third Quarter 1994 (continued)
---------------------------------------------------
The gross profit margin increased to 57% in the third quarter of 1995
from 49% in the third quarter of 1994, due primarily to the price increase,
the increase in sales volume, and improvements in manufacturing
efficiencies. The Company will continue to be unable to earn a profit on
sales of the electric LVAS until FDA approval of that system is obtained.
The Company recorded operating income of $1,267,000 in the third
quarter of 1995, compared with an operating loss of $406,000 in the third
quarter of 1994. This improvement resulted primarily from an increased
gross profit margin on higher revenues.
Interest income increased to $1,281,000 in the third quarter of 1995
from $1,051,000 in the third quarter of 1994, principally due to higher
prevailing interest rates in 1995 compared with 1994.
The effective tax rates for the third quarter of 1995 and, to a lesser
extent, the third quarter of 1994 were below the combined federal and state
statutory income tax rate of 40% due to the recognition of state tax loss
carryforwards.
First Nine Months 1995 Compared With First Nine Months 1994
-----------------------------------------------------------
Revenues in the first nine months of 1995 increased 118% to
$15,049,000 from $6,897,000 in the first nine months of 1994. Revenues
increased approximately 62% as a result of the price increase for the
Company's LVAS discussed in the results of operations for the third quarter
and, to a lesser extent, due to an increase in the number of air-driven and
electric LVAS implants. The number of LVAS units shipped during the first
nine months of 1995 increased 59% compared with the first nine months of
1994. The number of implementation programs sold in 1995 were comparable to
those sold in 1994.
The gross profit margin increased to 57% in the first nine months of
1995 from 47% in the first nine months of 1994, due primarily to the price
increase, the increase in sales volume, and improvements in manufacturing
efficiencies.
The Company recorded operating income of $3,172,000 in the first nine
months of 1995, compared with an operating loss of $1,328,000 in the first
nine months of 1994. This improvement resulted primarily from an increased
gross profit margin on higher revenues, partially offset by increased
expenses to market and distribute the Company's LVAS.
Interest income increased to $3,730,000 in the first nine months of
1995 from $3,123,000 in the first nine months of 1994, principally due to
higher prevailing interest rates in 1995 compared with 1994.
9PAGE
<PAGE>
Form 10-Q
September 30, 1995
THERMO CARDIOSYSTEMS INC.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
First Nine Months 1995 Compared With First Nine Months 1994 (continued)
-----------------------------------------------------------
The effective tax rates for the first nine months of 1995 and, to a
lesser extent, the first nine months of 1994 were below the combined
federal and state statutory income tax rate of 40% due to the recognition
of state tax loss carryforwards.
Financial Condition
Liquidity and Capital Resources
-------------------------------
Working capital, including cash, cash equivalents, and short-term
available-for-sale investments, was $47,493,000 at September 30, 1995,
compared with $44,121,000 at December 31, 1994. Cash, cash equivalents, and
short- and long-term available-for-sale investments were $88,794,000 at
September 30, 1995, compared with $84,389,000 at December 31, 1994.
During the remainder of 1995, the Company expects to make capital
expenditures of approximately $400,000, principally for manufacturing and
tooling equipment and leasehold improvements for the continued development
and production of the Company's LVAS. The Company believes that it has
adequate resources to meet its financial needs for the foreseeable future.
PART II - Other Information
Item 6 - Exhibits
See Exhibit Index on the page immediately preceding exhibits.
10PAGE
<PAGE>
Form 10-Q
September 30, 1995
THERMO CARDIOSYSTEMS INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized as of the 3rd day of November 1995.
THERMO CARDIOSYSTEMS INC.
Paul F. Kelleher
--------------------------
Paul F. Kelleher
Chief Accounting Officer
John N. Hatsopoulos
--------------------------
John N. Hatsopoulos
Chief Financial Officer
11PAGE
<PAGE>
Form 10-Q
September 30, 1995
THERMO CARDIOSYSTEMS INC.
EXHIBIT INDEX
Exhibit
Number Document Page
------- ----------------------------------------------------- ----
11 Statement re: Computation of earnings per share.
27 Financial Data Schedule.
Exhibit 11
THERMO CARDIOSYSTEMS INC.
Computation of Earnings per Share
Three Months Ended Nine Months Ended
-------------------------- --------------------------
September 30, October 1, September 30, October 1,
1995 1994 1995 1994
------------- ---------- ------------- ----------
Computation of Primary
Earnings per Share:
Net Income (a) $ 1,891,000 $ 387,000 $ 4,714,000 $ 1,106,000
----------- ----------- ----------- -----------
Shares:
Weighted average
shares outstanding 23,452,436 22,815,413 23,159,761 22,766,798
Add: Shares issuable
from assumed
conversion of
subordinated
convertible
debentures 1,098,471 1,517,939 1,316,067 1,517,939
Shares issuable
from assumed
exercise of
options (as
determined by
the application
of the treasury
stock method) 364,389 316,641 338,889 326,767
----------- ----------- ----------- -----------
Weighted average
shares outstanding,
as adjusted (b) 24,915,296 24,649,993 24,814,717 24,611,504
----------- ----------- ----------- -----------
Primary Earnings per
Share (a) / (b) $ .08 $ .02 $ .19 $ .04
=========== =========== =========== ===========
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO
CARDIOSYSTEMS INC.'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED
SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-END> SEP-30-1995
<CASH> 1,617
<SECURITIES> 38,626
<RECEIVABLES> 5,740
<ALLOWANCES> 281
<INVENTORY> 4,976
<CURRENT-ASSETS> 50,959
<PP&E> 2,643
<DEPRECIATION> 1,300
<TOTAL-ASSETS> 101,429
<CURRENT-LIABILITIES> 3,466
<BONDS> 22,100
<COMMON> 2,358
0
0
<OTHER-SE> 73,374
<TOTAL-LIABILITY-AND-EQUITY> 101,429
<SALES> 15,049
<TOTAL-REVENUES> 15,049
<CGS> 6,441
<TOTAL-COSTS> 6,441
<OTHER-EXPENSES> 2,507
<LOSS-PROVISION> 90
<INTEREST-EXPENSE> 225
<INCOME-PRETAX> 6,714
<INCOME-TAX> 2,000
<INCOME-CONTINUING> 4,714
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,714
<EPS-PRIMARY> 0.19
<EPS-DILUTED> 0
</TABLE>
