SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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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 April 1, 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 April 28, 1995
---------------------------- -----------------------------
Common Stock, $.10 par value 23,162,622
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Form 10-Q
April 1, 1995
THERMO CARDIOSYSTEMS INC.
PART I - Financial Information
Item 1 - Financial Statements
(a) Balance Sheet - Assets as of April 1, 1995 and December 31, 1994
(In thousands)
April 1, 1995 December 31, 1994
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Current Assets:
Cash and cash equivalents $ 8,224 $ 9,378
Short-term available-for-sale
investments, at quoted market
value (amortized cost of $18,525
and $29,978) 18,410 29,585
Accounts receivable, less allowances
of $256 and $225 3,611 4,256
Inventories:
Raw materials 3,518 3,123
Work in process 1,086 836
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34,849 47,178
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Machinery, Equipment and Leasehold
Improvements, at Cost 2,106 1,841
Less: Accumulated depreciation
and amortization 1,021 899
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1,085 942
------- -------
Long-term Available-for-sale
Investments, at Quoted Market
Value (amortized cost of $60,942
and $46,863) 60,607 45,426
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Long-term Prepaid Income Taxes 117 379
------- -------
Other Assets 832 939
------- -------
$97,490 $94,864
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The accompanying notes are an integral part of these financial statements.
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Form 10-Q
April 1, 1995
THERMO CARDIOSYSTEMS INC.
(a) Balance Sheet - Liabilities and Shareholders' Investment as of April 1,
1995 and December 31, 1994 (In thousands except share amounts)
April 1, 1995 December 31, 1994
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Current Liabilities:
Accounts payable $ 1,278 $ 800
Accrued payroll and employee benefits 518 507
Accrued income taxes 922 613
Deferred revenue 55 258
Other accrued expenses 312 323
Due to parent company and Thermo
Electron Corporation 828 556
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3,913 3,057
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Long-term Obligations:
Noninterest-bearing subordinated
convertible debentures 33,000 33,000
5 1/2% Subordinated convertible notes 450 450
------- -------
33,450 33,450
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Shareholders' Investment:
Common stock, $.10 par value, 50,000,000
shares authorized; 22,972,751 and
22,878,202 shares issued 2,297 2,288
Capital in excess of par value 57,334 57,081
Retained earnings 2,418 1,266
Treasury stock at cost, 52,289 and
46,204 shares (1,630) (1,089)
Net unrealized loss on available-for-sale
investments (292) (1,189)
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60,127 58,357
------- -------
$97,490 $94,864
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The accompanying notes are an integral part of these financial statements.
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Form 10-Q
April 1, 1995
THERMO CARDIOSYSTEMS INC.
(b) Statement of Income for the three months ended April 1, 1995 and
April 2, 1994 (In thousands except per share amounts)
Three Months Ended
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April 1, 1995 April 2, 1994
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Revenues $ 4,392 $ 2,060
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Costs and Operating Expenses:
Cost of revenues 1,928 1,164
Selling, general and administrative
expenses 973 644
Expenses for research and development 824 793
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3,725 2,601
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Operating Income (Loss) 667 (541)
Interest Income 1,197 999
Interest Expense (92) (48)
Gain on Sale of Investments - 97
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Income Before Provision for Income Taxes 1,772 507
Provision for Income Taxes 620 205
------- -------
Net Income $ 1,152 $ 302
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Earnings per Share $ .05 $ .01
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Weighted Average Shares 24,674 24,532
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The accompanying notes are an integral part of these financial statements.
4PAGE
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Form 10-Q
April 1, 1995
THERMO CARDIOSYSTEMS INC.
(c) Statement of Cash Flows for the three months ended April 1, 1995 and
April 2, 1994 (In thousands)
Three Months Ended
------------------------------
April 1, 1995 April 2, 1994
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Operating Activities:
Net income $ 1,152 $ 302
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization 229 114
Provision for losses on accounts
receivable 30 50
Gain on sale of investments - (97)
Changes in current accounts:
Accounts receivable 612 (1,246)
Inventories and unbilled contract
costs and fees (642) 165
Prepaid and refundable income taxes - 185
Accounts payable 478 101
Other current liabilities (735) (494)
-------- --------
Net cash provided by (used in)
operating activities 1,124 (920)
-------- --------
Investing Activities:
Proceeds from sale and maturities of
available-for-sale investments 17,275 14,096
Purchases of available-for-sale investments (19,550) (33,468)
Purchases of machinery, equipment and
leasehold improvements (265) (25)
-------- --------
Net cash used in investing activities (2,540) (19,397)
-------- --------
Financing Activities:
Net proceeds from issuance of Company
common stock 262 432
Net proceeds from issuance of subordinated
convertible debentures - 32,138
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Net cash provided by financing activities 262 32,570
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(Decrease) Increase in Cash and Cash
Equivalents (1,154) 12,253
Cash and Cash Equivalents at Beginning
of Period 9,378 892
-------- --------
Cash and Cash Equivalents at End of Period $ 8,224 $ 13,145
======== ========
Cash Paid For:
Interest $ 25 $ 33
Income taxes $ 533 $ 20
The accompanying notes are an integral part of these financial statements.
5PAGE
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Form 10-Q
April 1, 1995
THERMO CARDIOSYSTEMS INC.
(d) Notes to Financial Statements - April 1, 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-month periods ended April 1, 1995 and April 2, 1994, (b) the
financial position at April 1, 1995, and (c) the cash flows for the
three-month periods ended April 1, 1995 and April 2, 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). Each system 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 U.S. Food and Drug
Administration (FDA) granted approval for the commercial sale in the U.S.
of the air-driven LVAS. The electric version of the LVAS is currently being
used in clinical trials for patients awaiting heart transplants. 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.
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.
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Form 10-Q
April 1, 1995
THERMO CARDIOSYSTEMS INC.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
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
First Quarter 1995 Compared With First Quarter 1994
Revenues in the first quarter of 1995 were $4,392,000, compared with
$2,060,000 in the first quarter of 1994. Revenues increased in the first
quarter of 1995 principally due to an increase in the number of subsequent
implants performed at existing sites. The number of LVAS units shipped
during the first quarter of 1995 nearly doubled, compared with the first
quarter of 1994. The number of implementation programs sold in 1995 were
comparable to those sold in 1994. In addition, revenues increased
approximately 39% as a result of price increases for the Company's LVAS. In
the fourth quarter of 1994, the Company implemented a price increase in the
U.S. for its air-driven LVAS that will be phased in during a six-month
period and that will more than double the average price of an air-driven
LVAS. The final phase of the price increase is scheduled to take effect
during the second quarter of 1995. Similar price increases were implemented
on an international basis late in the first quarter of 1995.
The gross profit margin increased to 56% in the first quarter of 1995
from 43% in the first quarter of 1994, due primarily to the first phase of
the price increase which became effective in the fourth quarter of 1994,
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 $667,000 in the first quarter
of 1995, compared with a loss of $541,000 in the first quarter 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 $1,197,000 in the first quarter of 1995
from $999,000 in the first quarter of 1994, principally due to higher
prevailing interest rates in 1995, compared with 1994.
In April 1995, the Company received correspondence from a third party
alleging that the textured surface of the LVAS housing infringed certain
patent rights of such third party. The Company had previously received
similar correspondence from this third party but had not received any
7PAGE
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Form 10-Q
April 1, 1995
THERMO CARDIOSYSTEMS INC.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
First Quarter 1995 Compared With First Quarter 1994 (continued)
communication for over three years. The third party has offered the Company
a license, which the Company has elected not to accept. Although the
Company believes that it has adequate defenses to the claims of the third
party, no assurance can be made that the Company would be successful were
any litigation to be commenced.
Financial Condition
Liquidity and Capital Resources
Working capital, including cash, cash equivalents, and short-term
available-for-sale investments, was $30,936,000 at April 1, 1995, compared
with $44,121,000 at December 31, 1994. During the first quarter of fiscal
1995, $14,079,000 of cash was used for the purchase of long-term
available-for-sale investments, net of cash provided by the sale and
maturities of these investments. Cash, cash equivalents, and short- and
long-term available-for-sale investments were $87,241,000 at April 1, 1995,
compared with $84,389,000 at December 31, 1994.
PART II - Other Information
Item 6 - Exhibits
See Exhibit Index on the page immediately preceding exhibits.
8PAGE
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Form 10-Q
April 1, 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 5th day of May 1995.
THERMO CARDIOSYSTEMS INC.
Paul F. Kelleher
--------------------------
Paul F. Kelleher
Chief Accounting Officer
John N. Hatsopoulos
--------------------------
John N. Hatsopoulos
Chief Financial Officer
9PAGE
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Form 10-Q
April 1, 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
-----------------------------
April 1, 1995 April 2, 1994
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Computation of Primary Earnings per Share:
Net Income (a) $ 1,152,000 $ 302,000
----------- -----------
Shares:
Weighted average shares outstanding 22,853,606 22,701,470
Add: Shares issuable from assumed
conversion of subordinated
convertible debentures 1,517,939 1,517,939
Shares issuable from assumed
exercise of options (as determined
by the application of the treasury
stock method) 302,379 313,089
----------- -----------
Weighted average shares outstanding,
as adjusted (b) 24,673,924 24,532,498
----------- -----------
Primary Earnings per Share (a) / (b) $ .05 $ .01
=========== ===========
<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 APRIL
1, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
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<PERIOD-END> APR-01-1995
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<RECEIVABLES> 3,611
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<PP&E> 2,106
<DEPRECIATION> 1,021
<TOTAL-ASSETS> 97,490
<CURRENT-LIABILITIES> 3,913
<BONDS> 33,450
<COMMON> 2,297
0
0
<OTHER-SE> 57,830
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<SALES> 4,392
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<CGS> 1,928
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