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 March 30, 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 April 26, 1996
---------------------------- -----------------------------
Common Stock, $.10 par value 24,311,299
PAGE
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMO CARDIOSYSTEMS INC.
Balance Sheet
(Unaudited)
Assets
March 30, December 30,
(In thousands) 1996 1995
--------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 10,965 $ 4,398
Short-term available-for-sale
investments, at quoted market value
(amortized cost of $50,318 and $45,392) 50,870 46,123
Accounts receivable, less allowances
of $339 and $309 6,283 5,013
Inventories:
Raw materials 1,469 2,645
Work in process and finished goods 5,902 3,504
Prepaid and refundable income taxes 1,190 1,905
-------- --------
76,679 63,588
-------- --------
Machinery, Equipment and Leasehold
Improvements, at Cost 3,143 2,819
Less: Accumulated depreciation
and amortization 1,602 1,435
-------- --------
1,541 1,384
-------- --------
Long-term Available-for-sale Investments,
at Quoted Market Value (amortized cost
of $29,515 and $39,795) 29,325 39,953
-------- --------
Long-term Prepaid Income Taxes 783 783
-------- --------
Other Assets 418 478
-------- --------
$108,746 $106,186
======== ========
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THERMO CARDIOSYSTEMS INC.
Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
March 30, December 30,
(In thousands except share amounts) 1996 1995
--------------------------------------------------------------------------
Current Liabilities:
Accounts payable $ 2,337 $ 1,670
Accrued payroll and employee benefits 595 864
Accrued income taxes 1,114 -
Other accrued expenses 203 374
Due to parent company and Thermo
Electron Corporation 281 297
-------- --------
4,530 3,205
-------- --------
Subordinated Convertible Debentures 11,367 11,642
-------- --------
Shareholders' Investment:
Common stock, $.10 par value, 50,000,000
shares authorized; 24,214,025 and
24,126,947 shares issued 2,421 2,413
Capital in excess of par value 82,773 82,344
Retained earnings 10,602 8,191
Treasury stock at cost, 11,941 and
18,097 shares (3,182) (2,186)
Net unrealized gain on available-
for-sale investments 235 577
-------- --------
92,849 91,339
-------- --------
$108,746 $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
-----------------------
March 30, April 1,
(In thousands except per share amounts) 1996 1995
--------------------------------------------------------------------------
Revenues $ 6,693 $ 4,392
------- -------
Costs and Operating Expenses:
Cost of revenues 2,419 1,928
Selling, general and administrative expenses 1,248 973
Expenses for research and development 862 824
------- -------
4,529 3,725
------- -------
Operating Income 2,164 667
Interest Income 1,362 1,197
Interest Expense (28) (92)
Gain on Sale of Investments 68 -
------- -------
Income Before Provision for Income Taxes 3,566 1,772
Provision for Income Taxes 1,155 620
------- -------
Net Income $ 2,411 $ 1,152
======= =======
Earnings per Share $ .10 $ .05
======= =======
Weighted Average Shares 25,033 24,674
======= =======
The accompanying notes are an integral part of these financial statements.
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THERMO CARDIOSYSTEMS INC.
Statement of Cash Flows
(Unaudited)
Three Months Ended
----------------------
March 30, April 1,
(In thousands) 1996 1995
--------------------------------------------------------------------------
Operating Activities:
Net income $ 2,411 $ 1,152
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 229 229
Provision for losses on accounts receivable 30 30
Gain on sale of investments (68) -
Changes in current accounts:
Accounts receivable (1,300) 612
Inventories (1,215) (642)
Prepaid and refundable income taxes 715 -
Accounts payable 667 478
Other current liabilities (361) (735)
-------- --------
Net cash provided by operating activities 1,108 1,124
-------- --------
Investing Activities:
Proceeds from sale and maturities of
available-for-sale investments 31,915 17,275
Purchases of available-for-sale investments (26,492) (19,550)
Purchases of machinery, equipment and
leasehold improvements (344) (265)
-------- --------
Net cash provided by (used in)
investing activities 5,079 (2,540)
-------- --------
Financing Activities:
Net proceeds from issuance of Company
common stock 380 262
-------- --------
Increase (Decrease) in Cash and Cash Equivalents 6,567 (1,154)
Cash and Cash Equivalents at Beginning of Period 4,398 9,378
-------- --------
Cash and Cash Equivalents at End of Period $ 10,965 $ 8,224
======== ========
Cash Paid For:
Interest $ - $ 25
Income taxes $ 41 $ 533
Noncash Activities:
Conversions of convertible debentures $ 275 $ -
The accompanying notes are an integral part of these financial statements.
5PAGE
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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 (a) the results of operations for the
three-month periods ended March 30, 1996 and April 1, 1995, (b) the
financial position at March 30, 1996, and (c) the cash flows for the
three-month periods ended March 30, 1996 and April 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. Common shares outstanding as of March 30, 1996,
on a pro forma basis, reflecting the stock split, would have been
36,303,126 shares. The following table presents other selected financial
data on a pro forma basis to reflect the stock split.
Three Months Ended
--------------------
March 30, April 1,
(In thousands except per share amounts) 1996 1995
-------------------------------------------------------------------------
Earnings per share $ .06 $ .03
Weighted average shares 37,549 37,011
Financial results for prior periods will be restated in the second
quarter of 1996 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.
6PAGE
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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 heart transplant
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
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
First Quarter 1996 Compared With First Quarter 1995
Revenues in the first quarter of 1996 increased 52% to $6,693,000 from
$4,392,000 in the first quarter of 1995, primarily due to a 49% increase in
the number of air-driven and electric LVAS units shipped during the first
quarter of 1996. Approximately 10% 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 64% in the first quarter of 1996
from 56% in the first quarter of 1995, primarily due to the 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 19% in the first quarter of 1996 from 22% in the
first quarter of 1995 due to the higher sales volume in 1996. Research and
development expenses of $862,000 and $824,000 in the first quarter of 1996
and 1995, respectively, reflect the Company's continued development of the
LVAS.
Interest income increased to $1,362,000 in the first quarter of 1996
from $1,197,000 in the first quarter of 1995 as a result of higher
investment balances.
The effective tax rates were 32% and 35% in the first quarter of 1996
and 1995, respectively. These rates were below the combined statutory
federal and state income tax rate due to the recognition of certain state
tax benefits. As of March 30, 1996, there are no state tax benefits
remaining.
7PAGE
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THERMO CARDIOSYSTEMS INC.
Liquidity and Capital Resources
Working capital, including cash, cash equivalents, and short-term
available-for-sale investments, was $72,149,000 at March 30, 1996, compared
with $60,383,000 at December 30, 1995. Cash, cash equivalents, and short-
and long-term available-for-sale investments were $91,160,000 at March
30, 1996, compared with $90,474,000 at December 30, 1995. During the first
quarter of 1996, $1,108,000 of cash was provided by operating activities
and the Company expended $344,000 on purchases of machinery, equipment and
leasehold improvements.
During the remainder of 1996, the Company expects to make capital
expenditures of approximately $1,200,000, principally for manufacturing and
tooling equipment and leasehold improvements for the continued development
and production of the Company's LVAS. The Company believes that it has
adequate resources to meet its financial needs for the foreseeable future.
PART II - OTHER INFORMATION
Item 6 - Exhibits
See Exhibit Index on the page immediately preceding exhibits.
8PAGE
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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 6th day of May 1996.
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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THERMO CARDIOSYSTEMS INC.
Exhibit Index
Exhibit
Number Description of Exhibit 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
----------------------------
March 30, April 1,
1996 1995
----------------------------------------------------------------------------
Computation of Primary
Earnings per Share:
Net Income (a) $ 2,411,000 $ 1,152,000
----------- -----------
Shares:
Weighted average
shares outstanding 24,178,526 22,853,606
Add: Shares issuable from assumed
conversion of subordinated
convertible debentures 525,338 1,517,939
Shares issuable from assumed
exercise of options (as
determined by the application
of the treasury stock method) 328,794 302,379
----------- -----------
Weighted average shares
outstanding, as adjusted (b) 25,032,658 24,673,924
----------- -----------
Primary Earnings per Share (a) / (b) $ .10 $ .05
=========== ===========
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO
CARDIOSYSTEMS INC.'S QUARTERLY REPORT FILED ON FORM 10-Q FOR THE QUARTER ENDED
MARCH 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
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<PERIOD-END> MAR-30-1996
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<SECURITIES> 50,870
<RECEIVABLES> 6,622
<ALLOWANCES> 339
<INVENTORY> 7,371
<CURRENT-ASSETS> 76,679
<PP&E> 3,143
<DEPRECIATION> 1,602
<TOTAL-ASSETS> 108,746
<CURRENT-LIABILITIES> 4,530
<BONDS> 11,367
<COMMON> 2,421
0
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<OTHER-SE> 90,428
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<SALES> 6,693
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<CGS> 2,419
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<LOSS-PROVISION> 30
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