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 June 29, 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 July 26, 1996
---------------------------- ----------------------------
Common Stock, $.10 par value 36,694,432
PAGE
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMO CARDIOSYSTEMS INC.
Balance Sheet
(Unaudited)
Assets
June 29, December 30,
(In thousands) 1996 1995
-------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 7,681 $ 4,398
Short-term available-for-sale
investments, at quoted market value
(amortized cost of $53,769 and $45,392) 54,146 46,123
Accounts receivable, less allowances
of $339 and $309 7,243 5,013
Inventories:
Raw materials 1,590 2,645
Work in process and finished goods 7,656 3,504
Prepaid and refundable income taxes 1,419 1,905
-------- --------
79,735 63,588
-------- --------
Machinery, Equipment and Leasehold
Improvements, at Cost 3,262 2,819
Less: Accumulated depreciation
and amortization 1,750 1,435
-------- --------
1,512 1,384
-------- --------
Long-term Available-for-sale Investments,
at Quoted Market Value (amortized cost
of $29,293 and $39,795) 29,013 39,953
-------- --------
Long-term Prepaid Income Taxes 783 783
-------- --------
Other Assets 353 478
-------- --------
$111,396 $106,186
======== ========
2PAGE
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THERMO CARDIOSYSTEMS INC.
Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
June 29, December 30,
(In thousands except share amounts) 1996 1995
--------------------------------------------------------------------------
Current Liabilities:
Accounts payable $ 1,741 $ 1,670
Accrued payroll and employee benefits 313 864
Accrued income taxes 2,369 -
Other accrued expenses 238 374
Due to parent company and Thermo
Electron Corporation 190 297
-------- --------
4,851 3,205
-------- --------
Subordinated Convertible Debentures 8,532 11,642
-------- --------
Shareholders' Investment (Note 2):
Common stock, $.10 par value, 100,000,000
shares authorized; 36,534,792 and
24,126,947 shares issued 3,653 2,413
Capital in excess of par value 84,503 82,344
Retained earnings 13,001 8,191
Treasury stock at cost, 11,747 and
18,097 shares (3,206) (2,186)
Net unrealized gain on available-for-sale
investments 62 577
-------- --------
98,013 91,339
-------- --------
$111,396 $106,186
======== ========
The accompanying notes are an integral part of these financial statements.
3PAGE
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THERMO CARDIOSYSTEMS INC.
Statement of Income
(Unaudited)
Three Months Ended
--------------------
June 29, July 1,
(In thousands except per share amounts) 1996 1995
--------------------------------------------------------------------------
Revenues $ 7,429 $ 5,589
------- -------
Costs and Operating Expenses:
Cost of revenues 2,396 2,340
Selling, general and administrative expenses 1,549 1,099
Expenses for research and development 931 912
------- -------
4,876 4,351
------- -------
Operating Income 2,553 1,238
Interest Income 1,342 1,252
Interest Expense (27) (73)
Loss on Sale of Investments (16) -
------- -------
Income Before Provision for Income Taxes 3,852 2,417
Provision for Income Taxes 1,453 746
------- -------
Net Income $ 2,399 $ 1,671
======= =======
Earnings per Share $ .07 $ .04
======= =======
Weighted Average Shares 36,462 37,282
======= =======
The accompanying notes are an integral part of these financial statements.
4PAGE
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THERMO CARDIOSYSTEMS INC.
Statement of Income
(Unaudited)
Six Months Ended
--------------------
June 29, July 1,
(In thousands except per share amounts) 1996 1995
--------------------------------------------------------------------------
Revenues $14,122 $ 9,981
------- -------
Costs and Operating Expenses:
Cost of revenues 4,815 4,268
Selling, general and administrative expenses 2,797 2,072
Expenses for research and development 1,793 1,736
------- -------
9,405 8,076
------- -------
Operating Income 4,717 1,905
Interest Income 2,704 2,449
Interest Expense (55) (165)
Gain on Sale of Investments 52 -
------- -------
Income Before Provision for Income Taxes 7,418 4,189
Provision for Income Taxes 2,608 1,366
------- -------
Net Income $ 4,810 $ 2,823
======= =======
Earnings per Share $ .13 $ .08
======= =======
Weighted Average Shares 37,554 37,147
======= =======
The accompanying notes are an integral part of these financial statements.
5PAGE
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THERMO CARDIOSYSTEMS INC.
Statement of Cash Flows
(Unaudited)
Six Months Ended
--------------------
June 29, July 1,
(In thousands) 1996 1995
-------------------------------------------------------------------------
Operating Activities:
Net income $ 4,810 $ 2,823
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 437 460
Provision for losses on accounts receivable 30 60
Gain on sale of investments (52) -
Changes in current accounts:
Accounts receivable (2,260) (266)
Inventories (3,081) (578)
Prepaid and refundable income taxes 72 -
Accounts payable 71 517
Other current liabilities 999 (755)
-------- --------
Net cash provided by operating
activities 1,026 2,261
-------- --------
Investing Activities:
Proceeds from sale and maturities of
available-for-sale investments 51,014 43,914
Purchases of available-for-sale investments (48,837) (44,525)
Purchases of machinery, equipment and
leasehold improvements (483) (582)
Other - (100)
-------- --------
Net cash provided by (used in)
investing activities 1,694 (1,293)
-------- --------
Financing Activities:
Net proceeds from issuance of Company
common stock 563 440
-------- --------
Increase in Cash and Cash Equivalents 3,283 1,408
Cash and Cash Equivalents at Beginning of Period 4,398 9,378
-------- --------
Cash and Cash Equivalents at End of Period $ 7,681 $ 10,786
======== ========
Noncash Activities:
Conversions of convertible debentures $ 3,110 $ 6,040
The accompanying notes are an integral part of these financial statements.
6PAGE
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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 June 29, 1996,
the results of operations for the three- and six-month periods ended
June 29, 1996 and July 1, 1995, and the cash flows for the six-month
periods ended June 29, 1996 and July 1, 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
In April 1996, the Company declared a three-for-two stock split in the
form of a 50% stock dividend, payable on May 15, 1996, to shareholders of
record as of May 1, 1996. All share and per share information, except for
share information in the accompanying 1995 balance sheet, has been restated
to reflect the stock split.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
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.
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
7PAGE
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THERMO CARDIOSYSTEMS INC.
Overview (continued)
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 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
Second Quarter 1996 Compared With Second Quarter 1995
Revenues in the second quarter of 1996 increased 33% to $7,429,000
from $5,589,000 in the second quarter of 1995, primarily due to a 140%
increase in the number of LVAS implementation programs sold and, to a
lesser extent, a 26% increase in the number of air-driven and electric LVAS
units shipped during the second quarter of 1996 for subsequent implant.
The gross profit margin increased to 68% in the second quarter of 1996
from 58% in the second quarter 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 21% in the second quarter of 1996 from 20% in the
second quarter of 1995 as a result of higher marketing expenses due to an
increase in the Company's sales force. Research and development expenses of
$931,000 and $912,000 in the second quarter of 1996 and 1995, respectively,
reflect the Company's continued development of the LVAS.
Interest income increased to $1,342,000 in the second quarter of 1996
from $1,252,000 in the second quarter of 1995, primarily as a result of
higher invested balances.
The effective tax rates were 38% and 31% in the second 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.
8PAGE
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THERMO CARDIOSYSTEMS INC.
First Six Months 1996 Compared With First Six Months 1995
Revenues in the first six months of 1996 increased 41% to $14,122,000
from $9,981,000 in the first six months of 1995, primarily due to a 59%
increase in the number of LVAS implementation programs sold and a 38%
increase in the number of air-driven and electric LVAS units shipped during
the first six months of 1996 for subsequent implant. Approximately 5% of
the increase in revenues was a result of a price increase that was phased
in during the fourth quarter of 1994 and the first half of 1995.
The gross profit margin increased to 66% in the first six months of
1996 from 57% in the first six months of 1995, primarily due to an increase
in revenues from higher-margin implementation programs, an increase in
sales volume, improvements in manufacturing efficiencies and, to a lesser
extent, the price increase.
Selling, general and administrative expenses as a percentage of
revenues decreased to 20% in the first six months of 1996 from 21% in the
first six months of 1995, primarily due to the higher sales volume in 1996,
offset in part by higher marketing expenses due to an increase in the
Company's sales force. Research and development expenses of $1,793,000 and
$1,736,000 in the first six months of 1996 and 1995, respectively, reflect
the Company's continued development of the LVAS.
Interest income increased to $2,704,000 in the first six months of
1996 from $2,449,000 in the first six months of 1995, primarily as a result
of higher invested balances.
The effective tax rates were 35% and 33% in the first six months of
1996 and 1995, respectively. 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, including cash, cash equivalents, and short-term
available-for-sale investments, was $74,884,000 at June 29, 1996, compared
with $60,383,000 at December 30, 1995. Cash, cash equivalents, and short-
and long-term available-for-sale investments were $90,840,000 at June
29, 1996, compared with $90,474,000 at December 30, 1995. During the first
six months of 1996, $1,024,000 of cash was provided by operating
activities. The Company funded a $2,260,000 and a $3,081,000 increase in
accounts receivable and inventories, respectively, as a result of an
increase in sales volume during the first six months of 1996.
During the first six months of 1996, the Company expended $483,000 on
purchases of machinery, equipment and leasehold improvements. During the
remainder of 1996, the Company expects to make capital expenditures of
approximately $800,000, 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
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THERMO CARDIOSYSTEMS INC.
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
On May 20, 1996, at the Annual Meeting of Shareholders, the
shareholders reelected eight incumbent directors to a one-year term
expiring in 1997. 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. Dr. Bornhorst, Dr. Gyftopoulos, Dr. Laster and Dr.
Zervas each received 21,310,165 shares voted in favor of his election and
20,522 shares voted against; and Dr. Chapman, Mr. Howard, Mr. Poirier and
Mr. Wood each received 21,306,165 shares voted in favor of his election and
24,522 shares voted against. No abstentions or broker nonvotes were
recorded on the election of directors.
The shareholders also approved a proposal to amend the Company's
Articles of Organization to increase the Company's authorized common stock,
$.10 par value per share, from 50 million shares to 100 million shares as
follows: 21,113,092 shares voted in favor, 199,287 shares voted against,
and 18,308 shares abstained. No broker nonvotes were recorded on the
proposal.
Item 6 - Exhibits
See Exhibit Index on the page immediately preceding exhibits.
10PAGE
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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 5th day of August 1996.
THERMO CARDIOSYSTEMS INC.
Paul F. Kelleher
---------------------
Paul F. Kelleher
Chief Accounting Officer
John N. Hatsopoulos
---------------------
John N. Hatsopoulos
Chief Financial Officer
11PAGE
<PAGE>
THERMO CARDIOSYSTEMS INC.
EXHIBIT INDEX
Exhibit
Number Description of Exhibit Page
------------------------------------------------------------------------
3(i) Amended and Restated Articles of Organization of the
Registrant.
11 Statement re: Computation of earnings per share.
27 Financial Data Schedule.
Exhibit 3(i)
FEDERAL IDENTIFICATION
NO. 04-3027040
The Commonwealth of Massachusetts
William Francis Galvin
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
ARTICLES OF AMENDMENT
(General Laws, Chapter 156B, Section 72)
We, Victor L. Poirier, , President/XXXXXXXXXXXXXX
------------------------------------------
and Sandra L. Lambert, , Clerk/XXXXXXXX
------------------------------------------------------
of Thermo Cardiosystems Inc.
-----------------------------------------------------------
(Exact name of corporation)
located at 470 Wildwood Street, Woburn, MA 01888
----------------------------------------------------
(Street address of corporation in Massachusetts)
certify that these Articles of Amendment affecting articles numbered:
III
----------------------------------------------------------------
(Number those articles 1, 2, 3, 4, 5, and/or being amended)
of the Articles of Organization were duly adopted at a meeting held on May
20, 1996, by vote of:
21,113,092 shares of Common of 24,200,037 shares outstanding,
---------- --------- ----------
(type class & series, if any)
shares of of shares outstanding,
--------- ---------- -----------
(type class & series, if any)
shares of of shares outstanding,
--------- ---------- -----------
(type class & series, if any)
1** being at least a majority of each type, class or series outstanding
and entitled to vote thereon:/or XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
VOTED: That the proposal to amend the Articles of Organization of the
Corporation and to increase the authorized shares of Common Stock par value
$.10 per share from 50,000,000 to 100,000,000 shares is set forth in the
Proxy Statement dated April 19, 1996 be, and it hereby is, approved and
adopted.
* Delete the inapplicable words. **Delete the inapplicable clause
1 For amendments adopted pursuant to Chapter 156B, Section 70.
2 For amendments adopted pursuant to Chapter 156B, Section 71.
Note:If the space provided under any article or item on this form is
insufficient, additions shall be set forth on one side only of
separate 8 1/2 x 11 sheets of paper with a left margin of at least 1
inch. Additions to more than one article may be made on a single
sheet so long as each article requiring each addition is clearly
indicated.
(Mass. - 1636 - 9/25/95)
PAGE
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To change the number of shares and the par value (if any) of any type,
class or series of stock which the corporation is authorized to issue fill
in the following:
The total presently authorized is:
WITHOUT PAR VALUE STOCK WITH PAR VALUE STOCKS
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
Common: Common: 50,000,000 $.10
Preferred: Preferred:
Change the total authorized to:
WITHOUT PAR VALUE STOCK WITH PAR VALUE STOCKS
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
Common: Common: 100,000,000 $.10
Preferred: Preferred:
PAGE
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The foregoing amendment(s) will become effective when these Articles of
Amendment are filed in accordance with General Laws, Chapter, 156B, Section
6 unless these articles specify, in accordance with the vote adopting the
amendment, a later effective date not more than thirty days after such
filing, in which event the amendment will become effective on such later
date.
Later effective date:______________________________
SIGNED UNDER THE PENALTIES OF PERJURY this 21st day of May, 1996,
/s/Victor L. Poirier, *President/XXXXXXXXXXXXXXX
--------------------------------------
Victor L. Poirier
/s/Sandra L. Lambert, *Clerk/XXXXXXXXX
-----------------------------------------------
Sandra L. Lambert
*Delete the inapplicable words.
(MASS. - 1636)
PAGE
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
(General Laws, Chapter 156B, Section 72)
I hereby approve the within Articles of Amendment and, the filing fee in
the amount of $50,000 having been paid, said articles are deemed to have
been filed with me this 29th day of May, 1996.
Effective date:_____________________________
/s/William Francis Galvin
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
TO BE FILLED IN BY CORPORATION
Photocopy of document to be sent to:
CT Corporation System
2 Oliver Street
Boston, Massachusetts 02109
Attn: Amy
Exhibit 11
THERMO CARDIOSYSTEMS INC.
Computation of Earnings per Share
Three Months Ended Six Months Ended
-------------------------- --------------------------
June 29, July 1, June 29, July 1,
1996 1995 1996 1995
------------------------------------------------------------------------------
Computation of Primary
Earnings per Share:
Net Income (a) $ 2,399,000 $ 1,671,000 $ 4,810,000 $ 2,823,000
----------- ----------- ----------- -----------
Shares:
Weighted average
shares outstanding 36,461,692 34,759,875 36,364,738 34,520,144
Add: Shares issuable
from assumed
conversion of
subordinated
convertible
debentures - 1,997,682 710,473 2,137,295
Shares issuable
from assumed
exercise of
options (as
determined by
the application
of the treasury
stock method) - 524,847 478,396 489,208
----------- ----------- ----------- -----------
Weighted average
shares outstanding,
as adjusted (b) 36,461,692 37,282,404 37,553,607 37,146,647
----------- ----------- ----------- -----------
Primary Earnings
per Share (a) / (b) $ .07 $ .04 $ .13 $ .08
=========== =========== =========== ===========
<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 JUNE 29,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> JUN-29-1996
<CASH> 7,681
<SECURITIES> 54,146
<RECEIVABLES> 7,582
<ALLOWANCES> 339
<INVENTORY> 9,246
<CURRENT-ASSETS> 79,735
<PP&E> 3,262
<DEPRECIATION> 1,750
<TOTAL-ASSETS> 111,396
<CURRENT-LIABILITIES> 4,851
<BONDS> 8,532
0
0
<COMMON> 3,653
<OTHER-SE> 94,360
<TOTAL-LIABILITY-AND-EQUITY> 111,396
<SALES> 14,122
<TOTAL-REVENUES> 14,122
<CGS> 4,815
<TOTAL-COSTS> 4,815
<OTHER-EXPENSES> 1,793
<LOSS-PROVISION> 30
<INTEREST-EXPENSE> 55
<INCOME-PRETAX> 7,418
<INCOME-TAX> 2,608
<INCOME-CONTINUING> 4,810
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,810
<EPS-PRIMARY> .13
<EPS-DILUTED> 0
</TABLE>
