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 July 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 July 28, 1995
---------------------------- ----------------------------
Common Stock, $.10 par value 23,416,696
PAGE
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Form 10-Q
July 1, 1995
THERMO CARDIOSYSTEMS INC.
-------------------------
PART I - Financial Information
Item 1 - Financial Statements
(a) Balance Sheet - Assets as of July 1, 1995 and December 31, 1994
(In thousands)
July 1, 1995 December 31, 1994
------------ -----------------
Current Assets:
Cash and cash equivalents $ 10,786 $ 9,378
Short-term available-for-sale
investments, at quoted market
value (amortized cost of $34,647
and $29,978) 35,058 29,585
Accounts receivable, less allowances
of $286 and $225 4,462 4,256
Inventories:
Raw materials 1,832 3,123
Work in process 2,705 836
-------- --------
54,843 47,178
-------- --------
Machinery, Equipment and Leasehold
Improvements, at Cost 2,423 1,841
Less: Accumulated depreciation
and amortization 1,158 899
-------- --------
1,265 942
-------- --------
Long-term Available-for-sale
Investments, at Quoted Market
Value (amortized cost of $43,155
and $46,863) 43,624 45,426
-------- --------
Long-term Prepaid Income Taxes - 379
-------- --------
Other Assets 738 939
-------- --------
$100,470 $ 94,864
======== ========
The accompanying notes are an integral part of these financial statements.
2PAGE
<PAGE>
Form 10-Q
July 1, 1995
THERMO CARDIOSYSTEMS INC.
(a) Balance Sheet - Liabilities and Shareholders' Investment as of July 1,
1995 and December 31, 1994 (In thousands except share amounts)
July 1, 1995 December 31, 1994
------------ -----------------
Current Liabilities:
Accounts payable $ 1,317 $ 800
Accrued payroll and employee benefits 638 507
Accrued income taxes 1,670 613
Deferred revenue - 258
Other accrued expenses 294 323
Due to parent company and Thermo
Electron Corporation 261 556
-------- --------
4,180 3,057
-------- --------
Deferred Income Taxes 164 -
-------- --------
Long-term Obligations:
Noninterest-bearing subordinated
convertible debentures 27,410 33,000
5 1/2% Subordinated convertible notes - 450
-------- --------
27,410 33,450
-------- --------
Shareholders' Investment:
Common stock, $.10 par value, 50,000,000
shares authorized; 23,337,198 and
22,878,202 shares issued 2,334 2,288
Capital in excess of par value 63,408 57,081
Retained earnings 4,089 1,266
Treasury stock at cost, 50,350 and
46,204 shares (1,687) (1,089)
Net unrealized gain (loss) on available-
for-sale investments 572 (1,189)
-------- --------
68,716 58,357
-------- --------
$100,470 $ 94,864
======== ========
The accompanying notes are an integral part of these financial statements.
3PAGE
<PAGE>
Form 10-Q
July 1, 1995
THERMO CARDIOSYSTEMS INC.
(b) Statement of Income for the three months ended July 1, 1995 and
July 2, 1994 (In thousands except per share amounts)
Three Months Ended
-----------------------------
July 1, 1995 July 2, 1994
------------ ------------
Revenues $ 5,589 $ 2,313
------- -------
Costs and Operating Expenses:
Cost of revenues 2,340 1,196
Selling, general and administrative expenses 1,099 600
Expenses for research and development 912 898
------- -------
4,351 2,694
------- -------
Operating Income (Loss) 1,238 (381)
Interest Income 1,252 1,073
Interest Expense (73) (48)
------- -------
Income Before Provision for Income Taxes 2,417 644
Provision for Income Taxes 746 227
------- -------
Net Income $ 1,671 $ 417
======= =======
Earnings per Share $ .07 $ .02
======= =======
Weighted Average Shares 24,855 24,652
======= =======
The accompanying notes are an integral part of these financial statements.
4PAGE
<PAGE>
Form 10-Q
July 1, 1995
THERMO CARDIOSYSTEMS INC.
(b) Statement of Income for the six months ended July 1, 1995 and
July 2, 1994 (In thousands except per share amounts)
Six Months Ended
-----------------------------
July 1, 1995 July 2, 1994
------------ ------------
Revenues $ 9,981 $ 4,373
------- -------
Costs and Operating Expenses:
Cost of revenues 4,268 2,360
Selling, general and administrative expenses 2,072 1,244
Expenses for research and development 1,736 1,691
------- -------
8,076 5,295
------- -------
Operating Income (Loss) 1,905 (922)
Interest Income 2,449 2,072
Interest Expense (165) (96)
Gain on Sale of Investments - 97
------- -------
Income Before Provision for Income Taxes 4,189 1,151
Provision for Income Taxes 1,366 432
------- -------
Net Income $ 2,823 $ 719
======= =======
Earnings per Share $ .11 $ .03
======= =======
Weighted Average Shares 24,764 24,592
======= =======
The accompanying notes are an integral part of these financial statements.
5PAGE
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Form 10-Q
THERMO CARDIOSYSTEMS INC. July 1, 1995
(c) Statement of Cash Flows for the six months ended July 1, 1995 and
July 2, 1994 (In thousands)
Six Months Ended
----------------------------
July 1, 1995 July 2, 1994
------------ ------------
Operating Activities:
Net income $ 2,823 $ 719
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization 460 222
Provision for losses on accounts
receivable 60 90
Gain on sale of investments - (97)
Deferred costs from issuance of
subordinated convertible debentures - (875)
Changes in current accounts:
Accounts receivable (266) (1,100)
Inventories and unbilled contract
costs and fees (578) 180
Prepaid income taxes - 376
Accounts payable 517 193
Other current liabilities (755) (570)
-------- --------
Net cash provided by (used in) operating
activities 2,261 (862)
-------- --------
Investing Activities:
Proceeds from sale and maturities of
available-for-sale investments 43,914 17,636
Purchases of available-for-sale investments (44,525) (49,732)
Purchases of machinery, equipment and
leasehold improvements (582) (184)
Other (100) -
-------- --------
Net cash used in investing activities (1,293) (32,280)
-------- --------
Financing Activities:
Net proceeds from issuance of Company
common stock 440 473
Proceeds from issuance of subordinated
convertible debentures - 33,000
-------- --------
Net cash provided by financing activities 440 33,473
-------- --------
Increase in Cash and Cash Equivalents 1,408 331
Cash and Cash Equivalents at Beginning
of Period 9,378 892
-------- --------
Cash and Cash Equivalents at End of Period $ 10,786 $ 1,223
======== ========
Cash Paid For:
Interest $ 29 $ 33
Income taxes $ 715 $ 56
Noncash Financing Activities:
Conversions of convertible obligations $ 6,040 $ -
The accompanying notes are an integral part of these financial statements.
6PAGE
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Form 10-Q
July 1, 1995
THERMO CARDIOSYSTEMS INC.
(d) Notes to Financial Statements - July 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- and six-month periods ended July 1, 1995 and July 2, 1994, (b) the
financial position at July 1, 1995, and (c) the cash flows for the
six-month periods ended July 1, 1995 and July 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). 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 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.
7PAGE
<PAGE>
Form 10-Q
July 1, 1995
THERMO CARDIOSYSTEMS INC.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Overview (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
Second Quarter 1995 Compared With Second Quarter 1994
Revenues in the second quarter of 1995 increased 142% to $5,589,000
from $2,313,000 in the second quarter of 1994. Revenues increased
principally due to an increase in the number of air-driven and electric
LVAS implants. The number of LVAS units shipped during the second quarter
of 1995 increased 46% compared with the second quarter of 1994. The number
of implementation programs sold in the second quarter of 1995 were
comparable to those sold in 1994. In addition, revenues increased
approximately 54% 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 has been phased in during the first half
of 1995 and has more than doubled the average price of an air-driven LVAS.
The final phase of the price increase became effective 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 58% in the second quarter of 1995
from 48% in the second 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 $1,238,000 in the second
quarter of 1995, compared with a loss of $381,000 in the second 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 $1,252,000 in the second quarter of 1995
from $1,073,000 in the second quarter of 1994, principally due to higher
prevailing interest rates in 1995 compared with 1994.
The effective tax rates for the second quarter of 1995 and 1994 were
below the combined federal and state statutory income tax rate of 40% due
to the recognition of state tax loss carryforwards.
8PAGE
<PAGE>
Form 10-Q
July 1, 1995
THERMO CARDIOSYSTEMS INC.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
First Six Months 1995 Compared With First Six Months 1994
Revenues in the first six months of 1995 increased 128% to $9,981,000
from $4,373,000 in the first six months of 1994. Revenues increased
principally due to an increase in the number of air-driven and electric
LVAS implants. The number of LVAS units shipped during the first six months
of 1995 increased 69% compared with the first six months of 1994. The
number of implementation programs sold in 1995 were comparable to those
sold in 1994. In addition, revenues increased approximately 50% as a result
of price increases for the Company's LVAS discussed in the results of
operations for the second quarter.
The gross profit margin increased to 57% in the first six months of
1995 from 46% in the first six 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 $1,905,000 in the first six
months of 1995, compared with a loss of $922,000 in the first six 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 $2,449,000 in the first six months of
1995 from $2,072,000 in the first six months of 1994, principally due to
higher prevailing interest rates in 1995, compared with 1994.
The effective tax rates for the first six months of 1995 and 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 $50,663,000 at July 1, 1995, compared
with $44,121,000 at December 31, 1994. Cash, cash equivalents, and short-
and long-term available-for-sale investments were $89,468,000 at
July 1, 1995, compared with $84,389,000 at December 31, 1994.
During the remainder of 1995, the Company expects to make capital
expenditures of approximately $600,000, 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.
9PAGE
<PAGE>
Form 10-Q
July 1, 1995
THERMO CARDIOSYSTEMS INC.
PART II - Other Information
Item 4 - Submission of Matters to a Vote of Security Holders
On May 23, 1995, at the Annual Meeting of Shareholders, the
shareholders elected eight incumbent directors to a one-year term expiring
in 1996. The directors reelected at the meeting were: Dr. Walter J.
Bornhorst, Dr. Richard W.K. Chapman, Dr. Elias P. Gyftopoulos, Robert C.
Howard, Dr. Leonard Laster, Victor L. Poirier, John W. Wood Jr., and Dr.
Nicholas T. Zervas. Each nominee for director received 18,936,016 shares
voted in favor of his election and 7,168 shares voted against. No broker
nonvotes were recorded on the election of directors.
The shareholders also approved a proposal to amend the Directors Stock
Option Plan to change the formula for the award of stock options to
purchase common stock of the Company to its outside directors as follows:
18,780,399 shares voted in favor, 84,970 shares voted against, and 77,815
shares abstained. No broker nonvotes were recorded on this proposal.
Item 6 - Exhibits
See Exhibit Index on the page immediately preceding exhibits.
10PAGE
<PAGE>
Form 10-Q
July 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 4th day of August 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
July 1, 1995
THERMO CARDIOSYSTEMS INC.
EXHIBIT INDEX
-------------
Exhibit
Number Document Page
------- ----------------------------------------------------- ----
11 Statement re: Computation of earnings per share.
27 Financial Data Schedule.
12<PAGE>
Exhibit 11
THERMO CARDIOSYSTEMS INC.
Computation of Earnings per Share
Three Months Ended Six Months Ended
--------------------------- --------------------------
July 1, 1995 July 2, 1994 July 1, 1995 July 2, 1994
------------ ------------ ------------ ------------
Computation of Primary
Earnings per Share:
Net Income (a) $ 1,671,000 $ 417,000 $ 2,823,000 $ 719,000
----------- ----------- ----------- -----------
Shares:
Weighted average
shares outstanding 23,173,250 22,783,510 23,013,429 22,742,492
Add: Shares issuable
from assumed
conversion of
subordinated
convertible
debentures 1,331,788 1,517,939 1,424,863 1,517,939
Shares issuable
from assumed
exercise of
options (as
determined by
the application
of the treasury
stock method) 349,898 350,571 326,139 331,830
----------- ----------- ----------- -----------
Weighted average
shares outstanding,
as adjusted (b) 24,854,936 24,652,020 24,764,431 24,592,261
----------- ----------- ----------- -----------
Primary Earnings per
Share (a) / (b) $ .07 $ .02 $ .11 $ .03
=========== =========== =========== ===========
<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 JULY 1,
1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<RECEIVABLES> 4,462
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<INVENTORY> 4,537
<CURRENT-ASSETS> 54,843
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<BONDS> 27,410
<COMMON> 2,334
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<SALES> 9,981
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