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 28, 1996.
[ ] 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 25, 1996
---------------------------- -------------------------------
Common Stock, $.10 par value 36,700,764
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMO CARDIOSYSTEMS INC.
Balance Sheet
(Unaudited)
Assets
September 28, December 30,
(In thousands) 1996 1995
------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 16,511 $ 4,398
Short-term available-for-sale
investments, at quoted market value
(amortized cost of $45,595 and $45,392) 45,457 46,123
Accounts receivable, less allowances
of $369 and $309 8,600 5,013
Inventories:
Raw materials 6,454 2,645
Work in process and finished goods 4,195 3,504
Prepaid and refundable income taxes 1,405 1,905
-------- --------
82,622 63,588
-------- --------
Machinery, Equipment and Leasehold
Improvements, at Cost 3,435 2,819
Less: Accumulated depreciation
and amortization 1,928 1,435
-------- --------
1,507 1,384
-------- --------
Long-term Available-for-sale Investments,
at Quoted Market Value (amortized cost
of $29,124 and $39,795) 29,020 39,953
-------- --------
Long-term Prepaid Income Taxes 783 783
-------- --------
Other Assets 310 478
-------- --------
$114,242 $106,186
======== ========
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THERMO CARDIOSYSTEMS INC.
Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
September 28, December 30,
(In thousands except share amounts) 1996 1995
-----------------------------------------------------------------------
Current Liabilities:
Accounts payable $ 1,420 $ 1,670
Accrued payroll and employee benefits 462 864
Accrued income taxes 2,702 -
Other accrued expenses 295 374
Due to parent company and Thermo
Electron Corporation 238 297
-------- --------
5,117 3,205
-------- --------
Subordinated Convertible Debentures 6,097 11,642
-------- --------
Shareholders' Investment (Note 2):
Common stock, $.10 par value, 100,000,000
shares authorized; 36,705,699 and
24,126,947 shares issued 3,671 2,413
Capital in excess of par value 86,931 82,344
Retained earnings 15,763 8,191
Treasury stock at cost, 8,384 and
18,097 shares (3,182) (2,186)
Net unrealized gain (loss) on available-for-
sale investments (155) 577
-------- --------
103,028 91,339
-------- --------
$114,242 $106,186
======== ========
The accompanying notes are an integral part of these financial
statements.
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THERMO CARDIOSYSTEMS INC.
Statement of Income
(Unaudited)
Three Months Ended
------------------------------
September 28, September 30,
(In thousands except per share amounts) 1996 1995
-----------------------------------------------------------------------
Revenues $ 7,594 $ 5,068
------- -------
Costs and Operating Expenses:
Cost of revenues 2,590 2,173
Selling, general and administrative
expenses 1,570 857
Expenses for research and development 847 771
------- -------
5,007 3,801
------- -------
Operating Income 2,587 1,267
Interest Income 1,286 1,281
Interest Expense (11) (60)
Gain on Sale of Investments 665 37
------- -------
Income Before Provision for Income Taxes 4,527 2,525
Provision for Income Taxes 1,765 634
------- -------
Net Income $ 2,762 $ 1,891
======= =======
Earnings per Share $ .08 $ .05
======= =======
Weighted Average Shares 36,682 37,373
======= =======
The accompanying notes are an integral part of these financial
statements.
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THERMO CARDIOSYSTEMS INC.
Statement of Income
(Unaudited)
Nine Months Ended
----------------------------
September 28, September 30,
(In thousands except per share amounts) 1996 1995
------------------------------------------------------------------------
Revenues $21,716 $15,049
------- -------
Costs and Operating Expenses:
Cost of revenues 7,405 6,441
Selling, general and administrative
expenses 4,367 2,929
Expenses for research and development 2,640 2,507
------- -------
14,412 11,877
------- -------
Operating Income 7,304 3,172
Interest Income 3,990 3,730
Interest Expense (66) (225)
Gain on Sale of Investments 717 37
------- -------
Income Before Provision for Income Taxes 11,945 6,714
Provision for Income Taxes 4,373 2,000
------- -------
Net Income $ 7,572 $ 4,714
======= =======
Earnings per Share $ .21 $ .13
======= =======
Weighted Average Shares 36,471 37,222
======= =======
The accompanying notes are an integral part of these financial
statements.
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THERMO CARDIOSYSTEMS INC.
Statement of Cash Flows
(Unaudited)
Nine Months Ended
-----------------------------
September 28, September 30,
(In thousands) 1996 1995
------------------------------------------------------------------------
Operating Activities:
Net income $ 7,572 $ 4,714
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 647 683
Provision for losses on accounts
receivable 60 90
Gain on sale of investments (717) (37)
Changes in current accounts:
Accounts receivable (3,647) (1,574)
Inventories (4,485) (1,017)
Prepaid and refundable income taxes 100 -
Accounts payable (250) 552
Other current liabilities 1,686 (1,339)
-------- --------
Net cash provided by operating
activities 966 2,072
-------- --------
Investing Activities:
Proceeds from sale and maturities of
available-for-sale investments 69,394 54,771
Purchases of available-for-sale investments (58,209) (64,184)
Purchases of machinery, equipment and
leasehold improvements (655) (802)
Other - (100)
-------- --------
Net cash provided by (used in)
investing activities 10,530 (10,315)
-------- --------
Financing Activities:
Net proceeds from issuance of Company
common stock 617 482
-------- --------
Increase (Decrease) in Cash and Cash
Equivalents 12,113 (7,761)
Cash and Cash Equivalents at Beginning
of Period 4,398 9,378
-------- --------
Cash and Cash Equivalents at End of Period $ 16,511 $ 1,617
======== ========
Noncash Activities:
Conversions of convertible debentures $ 5,545 $ 11,350
The accompanying notes are an integral part of these financial
statements.
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THERMO CARDIOSYSTEMS INC.
Notes to Financial Statements
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 the financial position at September 28,
1996, the results of operations for the three- and nine-month periods
ended September 28, 1996 and September 30, 1995, and the cash flows for
the nine-month periods ended September 28, 1996 and September 30, 1995.
Interim results are not necessarily indicative of results for a full
year.
The balance sheet presented as of December 30, 1995, 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 30, 1995, filed with the Securities and Exchange Commission.
2. Stock Split
All share and per share information, except for share information in
the accompanying 1995 balance sheet, has been restated to reflect a
three-for-two stock split, effected in the form of a 50% stock dividend,
which was distributed in May 1996.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Management's
Discussion and Analysis of Financial Condition and Results of Operations.
These statements involve a number of risks and uncertainties, including
those detailed in Item 5 of this Quarterly Report on Form 10-Q.
Overview
The Company is a leader in the research, development, and
manufacture of both an air-driven and an electric 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 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.
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THERMO CARDIOSYSTEMS INC.
Overview (continued)
In October 1994, the Company announced that the FDA granted approval
for the commercial sale in the U.S. of the air-driven LVAS for use as a
bridge to heart transplant. With this approval, the air-driven system is
available for sale to cardiac centers throughout the U.S. 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 air-driven LVAS was granted the CE Mark
in early 1994. In late 1995, the FDA approved the protocol for conducting
clinical trials of the electric LVAS as an alternative to conventional
medical therapy in the U.S. In April 1996, the first implant under this
clinical trial was performed using the LVAS as an alternative for
nontransplant candidates. 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 in
the U.S. until approval of the device for commercial sale has been
received from the FDA. 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 in the
fourth quarter of 1994.
Results of Operations
Third Quarter 1996 Compared With Third Quarter 1995
Revenues in the third quarter of 1996 increased 50% to $7,594,000
from $5,068,000 in the third quarter of 1995, primarily due to a 108%
increase in the number of air-driven and electric LVAS units shipped for
subsequent implant and, to a lesser extent, an 11% increase in the number
of LVAS implementation programs sold during the third quarter of 1996.
The gross profit margin increased to 66% in the third quarter of
1996 from 57% in the third quarter of 1995, primarily due to an increase
in sales volume.
Selling, general and administrative expenses as a percentage of
revenues increased to 21% in the third quarter of 1996 from 17% in the
third quarter of 1995 as a result of higher marketing expenses due to an
increase in the Company's sales force. This increase was offset in part
by the effect of lower expenses as a percentage of revenues due to an
increase in sales volume. Expenses for research and development of
$847,000 and $771,000 in the third quarter of 1996 and 1995,
respectively, reflect the Company's continued development of the LVAS.
As discussed in Liquidity and Capital Resources, the Company has
signed a letter of intent to acquire a company principally engaged in
research and development. Should the Company complete the acquisition, it
expects that a substantial portion of the purchase price would represent
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THERMO CARDIOSYSTEMS INC.
Third Quarter 1996 Compared With Third Quarter 1995 (continued)
acquired technology under development and, accordingly, would be recorded
as an expense in the period in which the acquisition occurs.
Interest income remained relatively constant at $1,286,000 and
$1,281,000 in the third quarter of 1996 and 1995, respectively.
The Company recorded a gain on sale of investments of $665,000 in
the third quarter of 1996, compared with $37,000 in the third quarter of
1995.
The effective tax rates were 39% and 25% in the third quarter of
1996 and 1995, respectively. The effective tax rate in 1996 exceeded the
statutory federal income tax rate primarily due to the impact of state
income taxes. The effective tax rate in 1995 was below the statutory
federal income tax rate due to the recognition of remaining state tax
loss carryforwards.
First Nine Months 1996 Compared With First Nine Months 1995
Revenues in the first nine months of 1996 increased 44% to
$21,716,000 from $15,049,000 in the first nine months of 1995, primarily
due to a 56% increase in the number of air-driven and electric LVAS units
shipped for subsequent implant and a 38% increase in the number of LVAS
implementation programs sold during the first nine months of 1996.
The gross profit margin increased to 66% in the first nine months of
1996 from 57% in the first nine months of 1995, primarily due to an
increase in revenues from higher-margin implementation programs, an
increase in sales volume and, to a lesser extent, improvements in
manufacturing efficiencies.
Selling, general and administrative expenses as a percentage of
revenues increased to 20% in the first nine months of 1996 from 19% in
the first nine months of 1995 as a result of higher marketing expenses
due to an increase in the Company's sales force. This increase was offset
in part by the effect of lower expenses as a percentage of revenues due
to an increase in sales volume. Expenses for research and development of
$2,640,000 and $2,507,000 in the first nine months of 1996 and 1995,
respectively, reflect the Company's continued development of the LVAS.
Interest income increased to $3,990,000 in the first nine months of
1996 from $3,730,000 in the first nine months of 1995, primarily as a
result of higher invested balances.
The Company recorded a gain on sale of investments of $717,000 in
the first six months of 1996, compared with $37,000 in the first six
months of 1995.
The effective tax rates were 37% and 30% in the first nine months of
1996 and 1995, respectively. The effective tax rate in 1996 exceeded the
statutory federal income tax rate primarily due to the impact of state
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THERMO CARDIOSYSTEMS INC.
First Nine Months 1996 Compared With First Nine Months 1995 (continued)
income taxes. The effective tax rate in 1995 was below the statutory
federal income tax rate due to the recognition of remaining state tax
loss carryforwards.
Liquidity and Capital Resources
Working capital was $77,505,000 at September 28, 1996, compared with
$60,383,000 at December 30, 1995. Cash, cash equivalents, and short- and
long-term available-for-sale investments were $90,988,000 at September
28, 1996, compared with $90,474,000 at December 30, 1995. During the
first nine months of 1996, $966,000 of cash was provided by operating
activities. During the first nine months of 1996, the Company funded
$3,647,000 and $4,485,000 of increases in accounts receivable and
inventories, respectively, as a result of an increase in sales volume and
corresponding increases in production levels.
During the first nine months of 1996, the Company expended $655,000
on purchases of machinery, equipment and leasehold improvements. During
the remainder of 1996, the Company expects to make capital expenditures
of approximately $300,000, principally for manufacturing and tooling
equipment and leasehold improvements for the continued development and
production of the Company's LVAS.
The Company's Board of Directors has authorized the repurchase
through August 12, 1997, of up to $10.0 million of its own securities.
Any such purchases would be funded from working capital. Through
September 28, 1996, the Company had not expended any funds under this
authorization.
In October 1996, the Company signed a letter of intent to acquire
the assets of Nimbus Medical, Inc., a privately held research and
development company based in Rancho Cordova, California, for
approximately $5 million in cash. The completion of this transaction is
subject to several conditions, including completion of the Company's due
diligence investigation and negotiation of a definitive agreement. The
Company expects that the acquisition will be completed in the fourth
quarter of 1996. The Company believes that it has adequate resources to
meet its financial needs for the foreseeable future.
PART II - OTHER INFORMATION
Item 5 - Other Information
In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company wishes to caution
readers that the following important factors, among others, in some cases
have affected, and in the future could affect, the Company's actual
results and could cause its actual results in 1996 and beyond to differ
materially from those expressed in any forward-looking statements made
by, or on behalf of, the Company.
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THERMO CARDIOSYSTEMS INC.
Item 5 - Other Information (continued)
Uncertainty of Regulatory Approval for Biomedical Devices. The
Company's LVAS are subject to approval by the FDA before they may be sold
at a profit in the United States. The Company is also subject to
regulatory requirements in foreign countries in which the Company markets
its devices. The process of obtaining regulatory approvals is lengthy,
expensive, and inherently uncertain. Even after FDA approval has been
obtained, such approval can be suspended or revoked if the FDA does not
continue to be satisfied with the safety and efficacy of a product.
Failure to comply with applicable regulatory requirements can result in,
among other things, fines, suspensions of approvals, recalls of products,
operating restrictions, and criminal prosecutions.
In October 1994, the Company received FDA approval for the
commercial sale of its pneumatic LVAS. In April 1994, the Company
received the CE Mark for commercial sale of the pneumatic LVAS in all
European Union countries. The Company has developed the HeartPak(TM), a
lightweight, portable console that can be carried over the shoulder and
which can be used as an alternative to the larger external console
approved for use with the pneumatic LVAS. The HeartPak received the CE
mark in February 1995 and the HeartPak is currently in Phase I clinical
trials in the U.S. The Company's electric LVAS is currently in use in
clinical trials in the U.S. These trials are testing the safety and
efficacy of the device as both a bridge to transplant and as an
alternative to transplant. The electric LVAS received the CE Mark in
August 1995.
No assurance can be given that the Company will file a supplement to
its pre-market approval (PMA) application with the FDA with respect to
the electric LVAS on a timely basis, or at all, or that the PMA
supplement, if filed, will ultimately be approved by the FDA. In
addition, any design changes to the Company's LVAS, including use of the
portable console for the pneumatic LVAS, must be approved pursuant to a
supplement to an approved PMA application. Failure of the Company to
obtain FDA approval for the commercial sale of the electric LVAS, either
as a bridge to transplant or as an alternative to transplant, would have
a material adverse effect on the Company's long-term growth prospects. In
addition, failure of the Company to obtain approval for the HeartPak
portable console would require patients supported by the pneumatic LVAS
to remain hospitalized. This could materially decrease the market for the
pneumatic LVAS.
Uncertainty of Patient Reimbursement. The cost of implanting a
cardiac support system is substantial. Without the financial support of
the government or third party insurers, the market for the Company's
devices will be limited. Medicare and Medicaid limit the reimbursement
that U.S. hospitals receive for treating certain medical conditions by
setting maximum fees that can be charged to their patients. Under these
systems, hospitals are paid a fixed amount for treating each patient with
a particular diagnosis. Private insurers also have initiated
reimbursement systems designed to slow the escalation of health care
costs. In addition, the federal government is considering, and certain
state governments are considering or have adopted, new health care
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THERMO CARDIOSYSTEMS INC.
Item 5 - Other Information (continued)
policies intended to curb rising costs. Such policies include rationing
of government-funded reimbursement for health care services and imposing
price controls upon providers of medical products and services. These
policies could have the effect of limiting the availability of
reimbursement for procedures, such as the implantation of an LVAS, that
involve prolonged treatment of critically ill patients.
In November 1995, the U.S. Health Care Finance Administration (HCFA)
issued a decision that extends Medicare coverage to the Company's
HeartMate pneumatic LVAS. Several major nongovernment insurers, including
Blue Cross/Blue Shield of Connecticut, Aetna Life & Casualty Company, and
the health maintenance organization (HMO) U.S. Healthcare, have already
agreed to offer coverage for the pneumatic LVAS. Even though
reimbursement has been established by HCFA and by certain nongovernment
insurers, the amount of available reimbursement may change, and
reimbursement may be denied by an insurer under certain circumstances,
including if it is determined that a procedure was not the most
cost-effective treatment method, was experimental, or was used for an
unapproved indication. No assurance can be given that additional
third-party reimbursement for the pneumatic LVAS will be granted within a
reasonable period of time, or at all. The unavailability of third party
reimbursement for procedures involving the Company's systems would have a
material adverse effect on the Company's business.
Uncertainty of Opinion Leader Acceptance and Support. A limited
number of cardiac surgeons and cardiologists influence medical device
selection and purchase decisions for a large portion of the target
patient population. The Company will achieve its business objectives only
if its LVAS are recommended for use by such opinion leaders. The Company
has developed working relationships with a number of leading medical
centers, and its existing and proposed LVAS have been well received by
opinion leaders in cardiac surgery and cardiology. Moreover, since the
inception of its work on cardiac support systems in 1966, the Company has
relied upon surgical teams at medical institutions to perform clinical
trials that are necessary for obtaining FDA approvals. A continuing
working relationship with those and other institutions will be important
to the success of the Company. No assurance can be given that existing
relationships and arrangements can be maintained or that new
relationships will be established. Furthermore, economic, psychological,
ethical and other concerns may limit acceptance of heart-assist devices
in general, and there can be no assurance that markets of sufficient size
will develop for the Company's LVAS.
Technological Change and Competition. The Company is aware of only
one other company performing clinical trials of an intermediate or
long-term LVAS support in humans. However, there are many organizations
engaged in the development of various types of cardiac support systems,
including a total artificial heart. As other organizations realize the
commercial potential for LVAS, the Company believes that competition will
intensify. Although the length of the regulatory approval process for
medical devices such as LVAS is a barrier to entry into this market, the
Company's products could be rendered obsolete or uneconomical by
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THERMO CARDIOSYSTEMS INC.
Item 5 - Other Information (continued)
technological advances by one or more of the Company's present
competitors or by future entrants into the industry. Many manufacturers
of medical devices have greater research and development, manufacturing,
and marketing resources than those of the Company.
Availability of Components and Raw Materials. The Company relies on
a number of custom-designed components and materials supplied by other
companies to manufacture its LVAS, most of which are available from a
large number of suppliers. These suppliers, in turn, rely on one or two
basic raw materials. In 1992, two major manufacturers decided to phase
out or eliminate their supply of raw materials for implantable medical
devices, which affected the availability of several components and
materials the Company uses in its products. The Company has developed and
received FDA approval for the use of several alternative materials, and
is in the process of qualifying certain other alternative materials or
developing alternative sources for the materials no longer supplied by
these manufacturers. While the Company believes that it has adequate
supplies of materials and components to meet demand for its products for
the foreseeable future, no assurance can be given that the Company will
not experience shortages of certain materials or components in the future
that could delay shipments of its products. The cost to the Company to
evaluate and test alternative materials and components and the time
necessary to obtain FDA approval for these materials are inherently
difficult to determine because both time and cost are dependent on at
least two factors: the similarity of the alternative material or
component to the original material or component, and the amount of
third-party testing that may have already been completed on alternative
materials or components. There can be no assurance that the substitution
of alternative materials or components would not cause delays in the
Company's LVAS development programs or adversely affect the Company's
ability to manufacture and ship LVAS to meet demand.
Intellectual Property Rights. The Company relies principally upon
trade secret protection and, to a lesser extent, patents to protect its
proprietary rights. No assurance can be given that the Company will be
able to effectively protect its trade secrets, or that competitors will
not independently develop equivalent technology or design around the
Company's patents. The Company's competitive position could be adversely
affected if the Company is unable to protect adequately its proprietary
rights. In April 1995 the Company received correspondence from a third
party alleging that the textured surface of the LVAS had infringed
certain patent rights of such third party. The Company believes that it
has adequate defenses to the claims of the third party. However, no
assurance can be given that the Company would be successful if litigation
was commenced or that others will not claim that the Company infringes
their intellectual property rights.
Limited Manufacturing and Marketing Experience. Prior to FDA
approval of commercial sale of the pneumatic LVAS, the Company was
engaged only in the research and development of its LVAS. Since that
time, the Company has been building its manufacturing, marketing, and
sales capabilities. While the Company has not experienced difficulties
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THERMO CARDIOSYSTEMS INC.
Item 5 - Other Information (continued)
in manufacturing its LVAS at volumes, cost, and quality levels sufficient
to satisfy the increased demand resulting from commercial approval, no
assurance can be given that the Company will not encounter difficulties
as sales volumes increase or new products or components are approved for
commercial sale. The Company does not have experience in the large-scale
commercialization of medical devices. While the Company has added sales
and marketing staff and is expanding its distribution capabilities
worldwide, no assurance can be given that the Company will be able to
market and sell its products successfully in high volumes.
Product Liability. The Company faces an inherent business risk of
exposure to product liability claims relating to the use of its products.
Although the Company currently maintains product liability insurance
against this risk, there can be no assurance that it will continue to be
able to obtain such coverage at economically feasible rates, if at all,
or that such coverage will be adequate in terms and scope to completely
protect the Company in the event of a successful product liability claim.
Item 6 - Exhibits
See Exhibit Index on the page immediately preceding exhibits.
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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 November
1996.
THERMO CARDIOSYSTEMS INC.
Paul F. Kelleher
---------------------
Paul F. Kelleher
Chief Accounting Officer
John N. Hatsopoulos
---------------------
John N. Hatsopoulos
Chief Financial Officer
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THERMO CARDIOSYSTEMS INC.
EXHIBIT INDEX
Exhibit
Number Description of Exhibit Page
------------------------------------------------------------------------
10 Stock Holdings Assistance Plan and Form of
Promissory Note.
11 Statement re: Computation of earnings per share.
27 Financial Data Schedule.
THERMO CARDIOSYSTEMS INC.
STOCK HOLDINGS ASSISTANCE PLAN
SECTION 1. Purpose.
The purpose of this Plan is to benefit Thermo Cardiosystems
Inc. (the "Company") and its stockholders by encouraging Key
Employees to acquire and maintain share ownership in the Company,
by increasing such employees' proprietary interest in promoting
the growth and performance of the Company and its subsidiaries
and by providing for the implementation of the Guidelines.
SECTION 2. Definitions.
The following terms, when used in the Plan, shall have the
meanings set forth below:
Committee: The Human Resources Committee of the Board of
Directors of the Company as appointed from time to time.
Common Stock: The common stock of the Company and any
successor thereto.
Company: Thermo Cardiosystems Inc., a Massachusetts
corporation.
Guidelines: The Stock Holdings Guidelines for Key Employees
of the Company, as established by the Committee from time to
time.
Key Employee: Any employee of the Company or any of its
subsidiaries, including any officer or member of the Board of
Directors who is also an employee, as designated by the
Committee, and who, in the judgment of the Committee, will be in
a position to contribute significantly to the attainment of the
Company's strategic goals and long-term growth and prosperity.
Loans: Loans extended to Key Employees by the Company
pursuant to this Plan.
Plan: The Thermo Cardiosystems Inc. Stock Holdings
Assistance Plan, as amended from time to time.
SECTION 3. Administration.
The Plan and the Guidelines shall be administered by the
Committee, which shall have authority to interpret the Plan and
the Guidelines and, subject to their provisions, to prescribe,
amend and rescind any rules and regulations and to make all other
determinations necessary or desirable for the administration
thereof. The Committee's interpretations and decisions with
regard to the Plan and the Guidelines and such rules and
regulations as may be established thereunder shall be final and
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conclusive. The Committee may correct any defect or supply any
omission or reconcile any inconsistency in the Plan or the
Guidelines, or in any Loan in the manner and to the extent the
Committee deems desirable to carry it into effect. No member of
the Committee shall be liable for any action or omission in
connection with the Plan or the Guidelines that is made in good
faith.
SECTION 4. Loans and Loan Limits.
The Committee has determined that the provision of Loans
from time to time to Key Employees in such amounts as to cause
such Key Employees to comply with the Guidelines is, in the
judgment of the Committee, reasonably expected to benefit the
Company and authorizes the Company to extend Loans from time to
time to Key Employees in such amounts as may be requested by such
Key Employees in order to comply with the Guidelines. Such Loans
may be used solely for the purpose of acquiring Common Stock
(other than upon the exercise of stock options or under employee
stock purchase plans) in open market transactions or from the
Company.
Each Loan shall be full recourse and evidenced by a
non-interest bearing promissory note substantially in the form
attached hereto as Exhibit A (the "Note") and maturing in
accordance with the provisions of Section 6 hereof, and
containing such other terms and conditions, which are not
inconsistent with the provisions of the Plan and the Guidelines,
as the Committee shall determine in its sole and absolute
discretion.
SECTION 5. Federal Income Tax Treatment of Loans.
For federal income tax purposes, interest on Loans shall be
imputed on any interest free Loan extended under the Plan. A Key
Employee shall be deemed to have paid the imputed interest to the
Company and the Company shall be deemed to have paid said imputed
interest back to the Key Employee as additional compensation.
The deemed interest payment shall be taxable to the Company as
income, and may be deductible to the Key Employee to the extent
allowable under the rules relating to investment interest. The
deemed compensation payment to the Key Employee shall be taxable
to the employee and deductible to the Company, but shall also be
subject to employment taxes such as FICA and FUTA.
SECTION 6. Maturity of Loans.
Each Loan to a Key Employee hereunder shall be due and
payable on demand by the Company. If no such demand is made,
then each Loan shall mature and the principal thereof shall
become due and payable in five equal annual installments
commencing on the first anniversary date of the making of such
Loan. Each Loan shall also become immediately due and payable in
full, without demand, upon the occurrence of any of the events
2PAGE
<PAGE>
set forth in the Note; provided that the Committee may, in its
sole and absolute discretion, authorize an extension of the time
for repayment of a Loan upon such terms and conditions as the
Committee may determine.
3PAGE
<PAGE>
SECTION 7. Amendment and Termination of the Plan.
The Committee may from time to time alter or amend the Plan
or the Guidelines in any respect, or terminate the Plan or the
Guidelines at any time. No such amendment or termination,
however, shall alter or otherwise affect the terms and conditions
of any Loan then outstanding to Key Employee without such Key
Employee's written consent, except as otherwise provided herein
or in the promissory note evidencing such Loan.
SECTION 8. Miscellaneous Provisions.
(a) No employee or other person shall have any claim or
right to receive a Loan under the Plan, and no employee shall
have any right to be retained in the employ of the Company due to
his or her participation in the Plan.
(b) No Loan shall be made hereunder unless counsel for the
Company shall be satisfied that such Loan will be in compliance
with applicable federal, state and local laws.
(c) The expenses of the Plan shall be borne by the Company.
(d) The Plan shall be unfunded, and the Company shall not
be required to establish any special or separate fund or to make
any other segregation of assets to assure the making of any Loan
under the Plan.
(e) Except as otherwise provided in Section 7 hereof, by
accepting any Loan under the Plan, each Key Employee shall be
conclusively deemed to have indicated his acceptance and
ratification of, and consent to, any action taken under the Plan
or the Guidelines by the Company, the Board of Directors of the
Company or the Committee.
(f) The appropriate officers of the Company shall cause to
be filed any reports, returns or other information regarding
Loans hereunder, as may be required by any applicable statute,
rule or regulation.
SECTION 9. Effective Date.
The Plan and the Guidelines shall become effective upon
approval and adoption by the Committee.
4PAGE
<PAGE>
EXHIBIT A
THERMO CARDIOSYSTEMS INC.
Promissory Note
$_________
Dated:____________
For value received, ________________, an individual whose
residence is located at _______________________ (the "Employee"),
hereby promises to pay to Thermo Cardiosystems Inc. (the
"Company"), or assigns, ON DEMAND, but in any case on or before
[insert date which is the fifth anniversary of date of issuance]
(the "Maturity Date"), the principal sum of [loan amount in
words] ($_______), or such part thereof as then remains unpaid,
without interest. Principal shall be payable in lawful money of
the United States of America, in immediately available funds, at
the principal office of the Company or at such other place as the
Company may designate from time to time in writing to the
Employee.
Unless the Company has already made a demand for payment in
full of this Note, the Employee agrees to repay the Company, on
each of the first four anniversary dates of the date hereof, an
amount equal to 20% of the initial principal amount of the Note.
Payment of the final 20% of the initial principal amount, if no
demand has been made by the Company, shall be due and payable on
the Maturity Date.
This Note may be prepaid at any time or from time to time,
in whole or in part, without any premium or penalty. The
Employee acknowledges and agrees that the Company has advanced to
the Employee the principal amount of this Note pursuant to the
Company's Stock Holdings Assistance Plan, and that all terms and
conditions of such Plan are incorporated herein by reference.
The unpaid principal amount of this Note shall be and become
immediately due and payable without notice or demand, at the
option of the Company, upon the occurrence of any of the
following events:
(a) the termination of the Employee's employment with
the Company, with or without cause, for any reason or for no
reason;
(b) the death or disability of the Employee;
(c) the failure of the Employee to pay his or her
debts as they become due, the insolvency of the Employee,
5PAGE
<PAGE>
the filing by or against the Employee of any petition under
the United States Bankruptcy Code (or the filing of any
similar petition under the insolvency law of any
jurisdiction), or the making by the Employee of an
assignment or trust mortgage for the benefit of creditors or
the appointment of a receiver, custodian or similar agent
with respect to, or the taking by any such person of
possession of, any property of the Employee; or
(d) the issuance of any writ of attachment, by trustee
process or otherwise, or any restraining order or injunction
not removed, repealed or dismissed within thirty (30) days
of issuance, against or affecting the person or property of
the Employee or any liability or obligation of the Employee
to the Company.
In case any payment herein provided for shall not be paid
when due, the Employee further promises to pay all costs of
collection, including all reasonable attorneys' fees.
No delay or omission on the part of the Company in
exercising any right hereunder shall operate as a waiver of such
right or of any other right of the Company, nor shall any delay,
omission or waiver on any one occasion be deemed a bar to or
waiver of the same or any other right on any future occasion.
The Employee hereby waives presentment, demand, notice of
prepayment, protest and all other demands and notices in
connection with the delivery, acceptance, performance, default or
enforcement of this Note. The undersigned hereby assents to any
indulgence and any extension of time for payment of any
indebtedness evidenced hereby granted or permitted by the
Company.
This Note has been made pursuant to the Company's Stock
Holdings Assistance Plan and shall be governed by and construed
in accordance with, such Plan and the laws of the Commonwealth of
Massachusetts and shall have the effect of a sealed instrument.
_______________________________
Employee Name: _________________
________________________
Witness
Exhibit 11
THERMO CARDIOSYSTEMS INC.
Computation of Earnings per Share
Three Months Ended
----------------------------
September 28, September 30,
1996 1995
-----------------------------------------------------------------------
Computation of Primary Earnings per Share:
Net Income (a) $ 2,762,000 $ 1,891,000
----------- -----------
Shares:
Weighted average shares outstanding 36,682,454 35,178,654
Add: Shares issuable from assumed
conversion of subordinated convertible
debentures - 1,647,706
Shares issuable from assumed exercise
of options and warrants (as determined
by the application of the treasury
stock method) - 546,584
----------- -----------
Weighted average shares outstanding,
as adjusted (b) 36,682,454 37,372,944
----------- -----------
Primary Earnings per Share (a) / (b) $ .08 $ .05
=========== ===========
PAGE
<PAGE>
THERMO CARDIOSYSTEMS INC.
Computation of Earnings per Share (continued)
Nine Months Ended
---------------------------
September 28, September 30,
1996 1995
------------------------------------------------------------------------
Computation of Primary Earnings per Share:
Net Income (a) $ 7,572,000 $ 4,714,000
----------- -----------
Shares:
Weighted average shares outstanding 36,470,642 34,739,642
Add: Shares issuable from assumed
conversion of subordinated convertible
debentures - 1,974,100
Shares issuable from assumed exercise
of options and warrants (as determined
by the application of the treasury
stock method) - 508,334
----------- -----------
Weighted average shares outstanding,
as adjusted (b) 36,470,642 37,222,076
----------- -----------
Primary Earnings per Share (a) / (b) $ .21 $ .13
=========== ===========
<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 28, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> SEP-28-1996
<CASH> 16,511
<SECURITIES> 45,457
<RECEIVABLES> 8,969
<ALLOWANCES> 369
<INVENTORY> 10,649
<CURRENT-ASSETS> 82,622
<PP&E> 3,435
<DEPRECIATION> 1,928
<TOTAL-ASSETS> 114,242
<CURRENT-LIABILITIES> 5,117
<BONDS> 6,097
0
0
<COMMON> 3,671
<OTHER-SE> 99,357
<TOTAL-LIABILITY-AND-EQUITY> 114,242
<SALES> 21,716
<TOTAL-REVENUES> 21,716
<CGS> 7,405
<TOTAL-COSTS> 7,405
<OTHER-EXPENSES> 2,640
<LOSS-PROVISION> 60
<INTEREST-EXPENSE> 66
<INCOME-PRETAX> 11,945
<INCOME-TAX> 4,373
<INCOME-CONTINUING> 7,572
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,572
<EPS-PRIMARY> .21
<EPS-DILUTED> 0
</TABLE>
