SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------------------------
FORM 10-K
(mark one)
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended January 3, 1998
[ ] 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: (781) 622-1000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Common Stock, $.10 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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, and (2) has been subject to the
filing requirements for at least the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference into Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant as of January 30, 1998, was approximately $343,189,000.
As of January 30, 1998, the Registrant had 35,663,409 shares of Common
Stock outstanding (39,019,114 pro forma shares).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the year
ended January 3, 1998, are incorporated by reference into Parts I and II.
Portions of the Registrant's definitive Proxy Statement for the Annual
Meeting of Shareholders to be held on June 1, 1998, are incorporated by
reference into Part III.
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PART I
Item 1. Business
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(a) General Development of Business
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Thermo Cardiosystems Inc. (the Company or the Registrant) is a leader
in the research, development, and manufacture of implantable left
ventricular-assist systems (LVAS). These systems are 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, the LVAS allows the natural heart to remain in place,
preserving the heart's biological control mechanisms and reducing
blood-contacting surfaces that have led to strokes in patients using
other cardiac devices. The Company has developed two systems for patients
requiring long-term cardiac support: an implantable pneumatic LVAS that
is powered by an external electrically driven air-pump, and an electric
LVAS that is driven by an implanted electric motor and powered by a
lightweight battery pack worn by the patient.
In October 1994, the Company announced that the U.S. Food and Drug
Administration (FDA) had granted approval for the commercial sale of the
air-driven LVAS for use as a bridge to transplant. With this approval,
the air-driven system became available for sale to cardiac centers
throughout the United States. The Company received the European
Conformity Mark (CE Mark) for commercial sale of the air-driven LVAS in
all European Community countries in April 1994, and received the same
approval for the electric system in August 1995. The electric version of
the LVAS is currently being used in the United States in clinical trials
for patients awaiting heart transplants. In June 1997, the Company
submitted a premarket approval (PMA) supplemental application to receive
FDA approval of the electric LVAS for use as a bridge to transplant. This
application is currently under review; however, no assurance can be given
that the FDA will review this application on a timely basis or will grant
approval once it completes its review. In late 1995, the FDA approved the
protocol for conducting clinical trials of the electric LVAS as an
alternative to medical therapy, and in April 1996, the first patient was
implanted with an electric LVAS under this trial. In December 1997, the
FDA approved the Company's proposal to broaden the entrance criteria and
increase the number of participating sites under this trial. The electric
LVAS is being used in Europe as both a bridge to transplant and as an
alternative to medical therapy.
The Company's Nimbus Medical Inc. subsidiary has been involved in
artificial heart technology for more than 20 years and has carried out
research in two primary fields: ventricular-assist devices and total
artificial hearts. Nimbus was instrumental in developing the basic
technology for high-speed rotary blood pumps. Because of their smaller
size, rotary blood pumps may potentially be used to provide cardiac
support in small adults and in children.
On May 2, 1997, the Company acquired International Technidyne
Corporation from Thermo Electron Corporation in exchange for the right to
receive 3,355,705 shares of the Company's common stock. International
Technidyne is a leading manufacturer of near-patient, whole-blood
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coagulation testing equipment and related disposables and also
manufacturers premium-quality, single-use skin-incision devices. The
3,355,705 shares of the Company's common stock issuable in the merger
will not be issued until the listing of such shares for trading upon the
American Stock Exchange has been approved by the Company's shareholders.
Because Thermedics Inc. is the majority shareholder and intends to vote
its shares in favor of such listing, the approval is assured.
The Company was incorporated in 1988 as a wholly owned subsidiary of
Thermedics, a publicly traded subsidiary of Thermo Electron, and is the
successor in interest to the assets and business of that company relating
to the research and development of implantable heart-assist systems. This
business was conducted by Thermedics from its formation in 1983, and
prior to that time as a division of Thermo Electron beginning in 1966. As
of January 3, 1998, Thermedics owned 19,757,612 shares of the Company's
common stock, representing 51% of such stock outstanding. In addition to
the Company's products, Thermedics develops, manufactures, and markets
product quality-assurance systems, precision-weighing and inspection
equipment, electrochemistry and microweighing products, a range of power
products and instruments to test electronics, security devices, and
moisture-analysis systems. Thermedics is a 58%-owned subsidiary of Thermo
Electron. As of January 3, 1998, Thermo Electron owned 3,448,708 shares
of the Company's common stock, representing 8.8% of such stock
outstanding, including 3,355,705 shares issuable to Thermo Electron for
the acquisition of International Technidyne. Thermo Electron may purchase
shares of the Company's common stock from time to time in the open market
or in negotiated transactions. During 1997*, Thermo Electron purchased
50,400 shares of the Company's common stock on the open market for
$1,360,000. Thermo Electron provides analytical and monitoring
instruments; biomedical products including heart-assist devices,
respiratory-care equipment, and mammography systems; paper-recycling and
papermaking equipment; alternative-energy systems; industrial process
equipment; and other specialized products. Thermo Electron also provides
industrial outsourcing, particularly in environmental-liability
management, laboratory analysis, and metallurgical processing; and
conducts advanced-technology research and development.
Thermedics intends, for the foreseeable future, to maintain at least
50% ownership of the Company. This may require the purchase by Thermedics
of additional shares of common stock of the Company from time to time as
the number of outstanding shares issued by the Company increases. These
or any other purchases by Thermedics may be made either in the open
market or directly from the Company or Thermo Electron. On February 5,
1998, Thermedics' Board of Directors voted to acquire from Thermo
Electron the stock of TMO TCA Holdings Inc., which is the beneficial
owner of 3,355,705 shares of the Company's common stock, in exchange for
4,880,533 shares of Thermedics common stock. The issuance of Thermedics
common stock is subject to the approval of Thermedics' shareholders.
Because Thermo Electron is the majority shareholder and intends to vote
* References to 1997, 1996, and 1995 herein are for the fiscal years
ended January 3, 1998, December 28, 1996, and December 30, 1995,
respectively.
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its shares in favor of the transaction, the approval is assured. See
Notes 4 and 6 to Consolidated Financial Statements in the Company's 1997
Annual Report to Shareholders for a description of outstanding stock
options and convertible obligations issued by the Company.
Forward-looking Statements
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Annual Report
on Form 10-K. For this purpose, any statements contained herein that are
not statements of historical fact may be deemed to be forward-looking
statements. Without limiting the foregoing, the words "believes,"
"anticipates," "plans," "expects," "seeks," "estimates," and similar
expressions are intended to identify forward-looking statements. There
are a number of important factors that could cause the results of the
Company to differ materially from those indicated by such forward-looking
statements, including those detailed under the heading "Forward-looking
Statements" in the Registrant's 1997 Annual Report Shareholders, which
statements are incorporated herein by reference.
(b) Financial Information About Industry Segments
---------------------------------------------
The Company conducts business in one industry segment: the research,
development, and manufacture of implantable heart-assist systems and
other medical products.
(c) Description of Business
-----------------------
Product Background
The Company began its research and development work in cardiac-
support systems in 1966. Since that time, the Company and its
predecessors have received more than $37 million in funding from the U.S.
government, principally from the National Heart, Lung, and Blood
Institute of the National Institutes of Health (NIH), to support its
research. This funding ended in 1992 as the Company moved from
development to clinical trials.
Federal regulations require that the Company obtain an
investigational device exemption (IDE) from the FDA to conduct testing in
humans. Once sufficient testing has been completed to demonstrate the
safety and effectiveness of the LVAS, the Company submits a PMA
application to the FDA. PMA supplements must be submitted and approved
for each type and application of the Company's LVAS before being sold
commercially (see "Government Regulation").
LVAS Devices
The human heart contains two main pumping chambers: the left and
right ventricles. The right ventricle pumps blood into the lungs, where
it is oxygenated. The blood then flows into the left ventricle, where it
is pumped throughout the body. The Company's LVAS devices support all or
part of the pumping function of the left ventricle.
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The Company has developed two versions of its LVAS: an implantable
pneumatic, or air-driven, system that can be controlled by either a
bedside or portable console; and an electric system that features an
internal electric motor powered by an external battery pack worn by the
patient. Both of the Company's systems employ the Company's HeartMate(R)
blood pump, and are designed for long-term use. This pump is implanted
just below the diaphragm in a position that minimizes interference with
normal circulation and other bodily functions. An inlet tube is inserted
into the apex of the left ventricle to drain blood into the pump chamber.
Blood is then forced out of the pump through an animal tissue valve and
back into the aorta. The HeartMate blood pump works with the biological
control mechanism of the natural heart to increase pumping capability
when required for activities such as climbing stairs. The Company's LVAS
devices are at various stages of regulatory approval.
Air-driven LVAS. In October 1994, the FDA approved the air-driven
system as a bridge to transplant for patients awaiting heart
transplantation. This approval allows the Company to sell the air-driven
LVAS to any of the nearly 900 cardiac surgery centers in the United
States. In April 1994, the Company received the CE Mark for commercial
sale of the air-driven LVAS in all European Community countries. In the
air-driven LVAS, the HeartMate blood pump is coupled to an external
console connected to the body by a tube. The Company has also developed
the HeartPak(TM), a lightweight portable console that can be carried over
the shoulder. The portable console received the CE Mark for commercial
sale in European Community countries in February 1995. In July 1995, the
FDA approved the beginning of Phase I clinical trials of the HeartPak
portable pneumatic driver. The HeartPak is currently in Phase I clinical
trials in the U.S. Phase I of the study is evaluating the safety of the
system in the hospital; Phase II will evaluate the system in the home
environment.
Electric LVAS. The Company has also developed an electric LVAS that
uses the HeartMate blood pump driven by an internal electric motor
mounted in the blood pump housing. The system is connected to its
external battery pack by wires that exit the body. Since the power source
and control elements are worn on a battery belt, the system allows the
patient complete mobility. In August 1995, the electric LVAS was awarded
the CE Mark, allowing commercial sale of this system in all European
Community countries. The electric system is used as a bridge to
transplant in the United States, Europe, and other regions, and is also
implanted as an alternative to heart transplant in Europe and other
regions. The electric LVAS may not be sold commercially in the United
States until it has received approval from the FDA. The electric LVAS is
currently being used in the United States in clinical trials for patients
awaiting heart transplants. In June 1997, the Company submitted a PMA
supplemental application to receive FDA approval of the electric LVAS for
use as a bridge to transplant. This application is currently under
review; however, no assurance can be given that the FDA will review this
application on a timely basis or will grant approval once it completes
its review.
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In December 1995, the FDA approved the protocol for conducting
clinical trials of the electric LVAS as an alternative to medical
therapy. The trial is expected to compare the results of approved
patients using the device to a similar number using drug therapy. In
December 1997, the FDA approved the Company's proposal to broaden the
entrance criteria and increase the number of participating sites under
this trial. The Company estimates that it will complete this trial in two
to three years; however, no assurance can be given that the Company will
complete this study or that it will receive FDA approval during this time
period, or at all.
Blood-testing Equipment and Skin-incision Devices
International Technidyne manufacturers and supplies whole-blood
coagulation testing equipment and related disposables, as well as
skin-incision devices.
Whole-blood coagulation testing equipment. International Technidyne's
HEMOCHRON(R) and HEMOCHRON(R) Jr. product lines offer whole-blood
coagulation systems for bedside anticoagulation management, coagulation
screening, and transfusion management. Each analyzes small blood samples,
then processes and quickly displays comprehensive patient hemostasis
information. Blood management of this type is essential as the number of
invasive medical procedures, such as cardiopulmonary bypass surgery and
angioplasty, increase. Some HEMOCHRON models are designed for use either
in a clinical setting or at the patient's bedside, while others are
designed for testing at any patient location because they are
lightweight, battery-operated, and portable.
The ProTime(R) Microcoagulation System is designed to allow long-term
oral anticoagulant patient self-testing for patients who take the
blood-thinning drug warfarin (Coumidin). The system consists of a
hand-held instrument, a five-channel cuvette, and a finger-incision
device.
Skin-incision devices. International Technidyne manufactures a family
of single-use skin-incision devices for drawing blood from adults,
children, and infants. Each employs International Technidyne's patented
skin-incision technology to provide a standardized surgical incision, not
a puncture. International Technidyne's line of Surgicutt(R) products are
used to perform bleeding-time tests on adults, children, and newborns.
International Technidyne's Tenderlett(R) finger-incision products for
blood sampling are available in models suitable for adults, children, and
infants and toddlers. Tenderfoot(R) is a heel-incision device that is
designed specifically for toddlers, infants, and premature infants.
Government Regulation
The Company's products and its research, development, and
manufacturing activities are subject to regulation by numerous
governmental authorities in the United States and other countries. In the
United States, medical devices are subject to rigorous FDA review. The
Federal Food, Drug, and Cosmetic Act (the FDC Act), the Public Health
Services Act, and other federal statutes and regulations govern or
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influence the testing, manufacture, safety, labeling, storage, record
keeping, reporting, approval, advertising, and promotion of products such
as those offered by the Company. Noncompliance with applicable
requirements can result in fines, recalls or seizures of products, total
or partial suspension of production, and/or criminal prosecution.
Pursuant to the Medical Device Amendments of 1976 (the 1976
Amendments) to the FDC Act, and regulations promulgated thereunder,
medical devices intended for human use are classified into three
categories, Classes I, II, and III, which are subject to varying degrees
of regulatory control.
The Company's LVAS is classified as a Class III medical device under
the FDC Act, the classification generally given to life-sustaining or
implantable devices. Class III devices require clinical testing to ensure
safety and effectiveness. The first stage of obtaining formal FDA market
approval for a Class III device is submission of an application for an
IDE. The IDE application must be supported by data, typically including
the results of animal and mechanical testing. If approved, the IDE
permits clinical evaluations of significant risk devices on human
subjects under controlled experimental conditions by designated qualified
medical institutions. To obtain an IDE for a Class III device, approval
of the investigational plan for the applicable system is required from
the institutional review board within each participating medical
institution as well as from the FDA.
The second stage of formal FDA market approval is the PMA
application, which is submitted after sufficient data has been compiled
under the IDE. The FDA will grant market approval if it finds that the
safety and effectiveness of the product has been sufficiently
demonstrated, and that the product complies with all applicable
performance and manufacturing standards. In addition, any design change
to an approved device must be approved by the FDA pursuant to a
supplement to the applicable PMA application. The process of submitting
and obtaining FDA approval of a PMA application can take several years or
more, and is inherently uncertain. No assurance can be given that any of
the products under development by the Company currently or in the future,
including the electric LVAS, will be approved by the FDA for commercial
sale.
The Company is also subject to the FDA's Quality System (QS)
regulations. These regulations require that the Company manufacture its
systems and maintain its records in accordance with current Good
Manufacturing Practice (GMP). The FDA inspects the Company's facilities
for compliance with GMP. If the Company is found not to be in compliance,
the FDA has broad powers to issue recalls, enjoin future violations, and
assess civil and criminal penalties against the Company, its officers,
and its employees. In addition to the QS regulations, the Company must
adhere to quality standards applicable to European Community member
countries and other countries where the Company sells its systems. The
Company is also subject to registration and inspection requirements of
state regulatory agencies.
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Sales of medical devices outside the United States are subject to
foreign regulatory requirements that vary widely from country to country.
Whether or not FDA approval has been obtained, approval of a device by a
comparable regulatory authority of a foreign country generally must be
obtained prior to the commencement of marketing in those countries. The
time required to obtain such approvals may be longer or shorter than that
required for FDA approval.
No FDA approval is required to export a device that is legally
marketed in the United States by the exporting company. Unapproved Class
III devices may also be exported without FDA approval to any country if
the device complies with the law of that country and has valid marketing
authorization in at least one of the following: Australia, Canada,
Israel, Japan, New Zealand, Switzerland, South Africa, or the European
Union or a country in the European Economic Area (listed countries).
Similarly, no FDA approval is required to export an investigational
device to a listed country as long as the proposed investigational use is
in accord with the importing country's laws. However, FDA approval is
required to export an unapproved Class III device that does not have
marketing authorization in one of the listed countries or to export an
investigational device to a nonlisted country. In such cases, the FDA
must determine that exportation of the unapproved or investigational
device is not contrary to the public health and safety and has the
approval of the country to which it is intended for export.
A majority of International Technidyne's products are regulated by
the FDA as Class II medical devices. International Technidyne is also
subject to regulatory requirements in foreign countries in which it
markets its devices. The FDA conducted a routine audit of International
Technidyne's manufacturing facilities in September 1996, inspecting the
manufacture of International Technidyne's coagulation timing instruments
and coagulation timing cuvettes. On November 15, 1996, the FDA informed
International Technidyne that the areas inspected appeared to be in
substantial compliance with the applicable requirements of the FDC Act
and the regulations thereunder.
Third-party Reimbursement
The HeartMate air-driven LVAS is the only implantable, ventricular-
assist system approved for commercial sale, as a bridge to transplant in
the U.S. by the FDA.
In November 1995, the U.S. Health Care Finance Administration (HCFA)
issued a decision that extends Medicare coverage to the Company's
HeartMate air-driven LVAS. Part of the U.S. Department of Health and
Human Services, HCFA is responsible for establishing coverage and
reimbursement policies for Medicare and recommending guidelines for
Medicaid. Many third-party payers review HCFA recommendations to
establish their own reimbursement policies. Several major nongovernment
insurers have already agreed to offer coverage for the air-driven LVAS.
Additional insurers are reviewing the clinical results of the device, and
additional coverage decisions will be forthcoming. HCFA's coverage policy
could extend to the electric LVAS once approved, although there can be no
assurance such coverage will extend to the electric LVAS. In addition,
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some major nongovernment insurers currently offer coverage for the
electric LVAS because of its IDE status as a category B device (eligible
for Medicare coverage and payment).
Additionally, the HCFA coding committee has established a detailed
resource code to be used when an implantable assist device, such as the
HeartMate air-driven LVAS, is employed. This will facilitate collection
of data on medical costs as well as resource information that may be used
in establishing a Diagnosis Related Group (DRG) specific to
ventricular-assist systems. HCFA and most states require that DRGs be
used in determining the amount of reimbursement for particular
procedures.
Sales of the Company's systems will depend to a large degree upon the
availability of reimbursement for the implantation of the devices. Even
though reimbursement has been established by HCFA and by several
nongovernment insurers for the air-driven LVAS, the amount of available
reimbursement may change, and reimbursement may be denied by an insurer
under certain circumstances, including determination 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 HeartMate air-driven LVAS
will be granted within a reasonable period of time, or at all, and the
Company cannot predict what effect the future policies of government
entities and insurers will have on the sale of the Company's devices. The
unavailability of third-party reimbursement for procedures involving the
Company's systems would have a material adverse effect on the Company's
business.
International Technidyne's ProTime device was cleared for patient
self-testing by the FDA in 1997 and is currently being evaluated by the
HCFA to determine whether this device will be eligible for coverage by
Medicare.
Raw Materials
Certain raw materials used in the manufacture of the Company's LVAS
are available from only one or two suppliers. The Company is making
efforts to minimize the risks associated with sole sources and ensure
long-term availability, including qualifying alternative materials and
components or developing alternative sources for materials and components
supplied by a single source. Although the Company believes that it has
adequate supplies of materials and components to meet demand for the LVAS
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 the LVAS.
The cost to the Company to evaluate and test alternative materials
and components and the time necessary to obtain FDA approval for these
materials or components are inherently difficult to determine because
both time and cost are dependent on at least two factors: the similarity
of the alternative materials or components to the original materials or
components, and the amount of third-party testing that may have already
been completed on alternative materials or components. There can be no
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assurance that the substitution of alternative materials or components
will not cause delays in the Company's LVAS development program or
adversely affect the Company's ability to manufacture and ship LVAS to
meet demand.
Intellectual Property
The Company's policy is to protect its intellectual property rights
relating to its work on cardiac-support systems including, if
appropriate, applying for patents in the United States and foreign
countries. Thermedics has granted the Company a royalty-free license to
use the Dermaport(R) access device and Tecoflex(R) biomaterial in its
LVAS. Although some of these patent rights may provide the Company with a
competitive advantage, the Company primarily relies on its know-how and
trade secrets developed over 30 years of research, development, and
fabrication of cardiac-assist devices. The Company has received
correspondence from a third party alleging that the textured surface of
the LVAS housing infringes certain patent rights of such third party. The
third party has offered the Company a license, which the Company elected
not to accept. Although the Company believes that it has meritorious
defenses to the claims of the third party, due to the inherent
uncertainty of litigation, no assurance can be made that the Company
would be successful if any litigation were to begin. The Company seeks to
protect its proprietary information, but there can be no assurance that
others will neither develop independently the same or similar information
nor obtain access to information that the Company believes is
proprietary. Moreover, there can be no assurance that others will not
claim that the Company's activities infringe their intellectual property
rights.
Dependency on a Single Customer
Revenues from one customer accounted for 24%, 23%, and 25% of the
Company's total revenues in 1997, 1996, and 1995, respectively. The loss
of this customer would have a material adverse impact on the Company.
Backlog
The Company's backlog of firm orders was approximately $2,556,000 and
$1,947,000 as of January 3, 1998, and December 28, 1996, respectively.
Certain of these orders are cancellable by the customer upon payment of a
cancellation charge. The Company believes that approximately 65% of the
backlog at January 3, 1998, will be shipped or completed during the next
12 months. The Company does not believe that the size of its backlog is
necessarily indicative of intermediate or long-term trends in its
business.
Competition
The Company is aware of one other company that has submitted a PMA
application with the FDA for an implantable LVAS. The Company is unaware
whether this PMA application has been accepted for filing by the FDA.
Also, the Company is aware of one other company that has received
approval by the FDA Advisory Panel on Circulatory System Devices and
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subsequent commercial approval for its cardiac-assist device. This is an
external device, positioned on the outside of the patient's chest, and is
intended for short-term use in the hospital environment. In addition, the
Company is aware that a total artificial heart is currently undergoing
clinical trials. The requirement of obtaining FDA approval for commercial
sale of an LVAS in the United States is a significant barrier to entry
into the United States market for these devices. There can be no
assurance, however, that FDA regulations will not change in the future,
reducing the time and testing required for others to obtain FDA approval
for commercial sale. In addition, other research groups and companies,
some that have significantly greater resources than those of the Company,
are developing cardiac systems using alternative technologies or
concepts, one or more of which might prove functionally equivalent to, or
more suitable than, the Company's systems. Among products that have been
approved for commercial sale, the Company competes primarily on the basis
of performance, service capability, and price. Competition in the market
for medical devices is also significantly affected by the reimbursement
policies of government and private insurers. Any product for which
reimbursement is not available from such third-party payors will be at a
significant competitive disadvantage.
International Technidyne's principal competitor in the market for
coagulation monitoring instruments such as HEMOCHRON is the HemoTec
division of Medtronic, which manufactures a whole-blood ACT instrument as
well as the Hepcon Hemostatic Monitoring System. International Technidyne
also competes with CDI, which is attempting to compete with HEMOCHRON.
Boehringer Mannheim Corporation has developed a patient blood coagulation
self-testing device similar to the ProTime, which is marketed to
professionals. Boehringer Mannheim has also recently received FDA
clearance for patient self-testing for this product. International
Technidyne's coagulation monitoring products compete on the basis of
reputation, price, and reliability.
International Technidyne's incision devices compete with products
offered by a number of companies, including Organon Teknika; Becton,
Dickinson and Company; and Sherwood Medical Company. International
Technidyne's incision devices compete primarily on the basis of quality,
reliability, and reputation.
Research and Development
During 1997, 1996, and 1995, the Company expended approximately
$8,682,000, $7,498,000, and $7,111,000, respectively, on internally
sponsored research and development programs.
Environmental Protection Regulations
The Company believes that compliance by the Company with federal,
state, and local environmental protection regulations will not have a
material adverse effect on its capital expenditures, earnings, or
competitive position.
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Number of Employees
As of January 3, 1998, the Company had a total of 420 employees. None
of the Company's employees are represented by a labor union, and the
Company considers its relations with its employees to be good.
(d) Financial Information about Exports by Domestic Operations
----------------------------------------------------------
Financial information about exports by domestic operations is
summarized in Note 11 to Consolidated Financial Statements in the
Registrant's 1997 Annual Report to Shareholders, which information is
incorporated herein by reference.
(e) Executive Officers of the Registrant
------------------------------------
Present Title (Year First Became
Name Age Executive Officer)
---------------------------- --- ---------------------------------
Victor L. Poirier 56 President and Chief Executive
Officer (1988)
John N. Hatsopoulos 63 Chief Financial Officer and
Senior Vice President (1988)
Betty A. Silverstein-Russell 48 Senior Vice President (1989)
Timothy J. Krauskopf 36 Vice President, Regulatory
Affairs (1995)
Paul F. Kelleher 55 Chief Accounting Officer (1988)
Each executive officer serves until his or her successor is chosen or
appointed by the Board of Directors and qualified or until earlier
resignation, death, or removal. All executive officers, except Mr.
Krauskopf, have held comparable positions for at least five years with
the Company, Thermedics, or Thermo Electron. Mr. Poirier devotes
substantially all of his time to the affairs of the Company, but also
devotes a portion of his time to the affairs of Thermedics. Messrs.
Hatsopoulos and Kelleher are full-time employees of Thermo Electron, but
devote such time to the affairs of the Company as the Company's needs
reasonably require. Mr. Krauskopf was previously Director of Regulatory
Affairs of the Company from 1993 to 1995, and prior to that, was Senior
Regulatory Affairs Coordinator at USCI division of C.R. Bard, Inc. from
1992 to 1993, and worked in clinical affairs at Carbomedics, Inc. from
1989 to 1992.
Item 2. Properties
----------
The Company owns approximately 66,000 square feet of office,
manufacturing, and research facilities and leases approximately 24,000
square feet of office space in Edison, New Jersey. The Company subleases
approximately 32,200 square feet of space in Thermedics' corporate
headquarters in Woburn, Massachusetts, pursuant to a sublease expiring in
1999. The Company also subleases approximately 8,000 square feet of
office and research facilities in Chelmsford, Massachusetts, from
Thermedics Detection Inc., a publicly traded, majority-owned subsidiary
of Thermedics, pursuant to a two-year lease agreement. In addition, the
Company occupies approximately 11,000 square feet of office and research
12PAGE
<PAGE>
facilities in Rancho Cordova, California, pursuant to a lease expiring in
2002. The Company believes that these facilities are in good condition
and are suitable for its present operations.
Item 3. Legal Proceedings
-----------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
-------------------------------------------------------------
Matters
-------
Information concerning the market and market price for the
Registrant's common stock, $.10 par value, and dividend policy is
included under the sections labeled "Common Stock Market Information" and
"Dividend Policy" in the Registrant's 1997 Annual Report to Shareholders
and is incorporated herein by reference.
Item 6. Selected Financial Data
-----------------------
The information required under this item is included under the
sections labeled "Selected Financial Information" and "Dividend Policy"
in the Registrant's 1997 Annual Report to Shareholders and is
incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
The information required under this item is included under the
heading "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in the Registrant's 1997 Annual Report to
Shareholders and is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
The Registrant's Consolidated Financial Statements as of January 3,
1998 and Supplementary Data are included in the Registrant's 1997 Annual
Report to Shareholders and are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure
--------------------
Not applicable.
13PAGE
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
The information concerning directors required under this item is
incorporated herein by reference from the material contained under the
caption "Election of Directors" in the Registrant's definitive proxy
statement to be filed with the Securities and Exchange Commission
pursuant to Regulation 14A, not later than 120 days after the close of
the fiscal year. The information concerning delinquent filers pursuant to
Item 405 of Regulation S-K is incorporated herein by reference from the
material contained under the heading "Section 16(a) Beneficial Ownership
Reporting Compliance" under the caption "Stock Ownership" in the
Registrant's definitive proxy statement to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A, not later than 120
days after the close of the fiscal year.
Item 11. Executive Compensation
----------------------
The information required under this item is incorporated herein by
reference from the material contained under the caption "Executive
Compensation" in the Registrant's definitive proxy statement to be filed
with the Securities and Exchange Commission pursuant to Regulation 14A,
not later than 120 days after the close of the fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
The information required under this item is incorporated herein by
reference from the material contained under the caption "Stock Ownership"
in the Registrant's definitive proxy statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A, not later
than 120 days after the close of the fiscal year.
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
The information required under this item is incorporated herein by
reference from the material contained under the caption "Relationship
with Affiliates" in the Registrant's definitive proxy statement to be
filed with the Securities and Exchange Commission pursuant to Regulation
14A, not later than 120 days after the close of the fiscal year.
14PAGE
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
----------------------------------------------------------------
(a,d) Financial Statements and Schedules
----------------------------------
(1) The financial statements set forth in the list below are
filed as part of this Report.
(2) The financial statement schedule set forth in the list below
is filed as part of this Report.
(3) Exhibits filed herewith or incorporated herein by reference
are set forth in Item 14(c) below.
List of Financial Statements and Schedules Referenced in this
-------------------------------------------------------------
Item 14
-------
Information incorporated by reference from Exhibit 13 filed
herewith:
Consolidated Statement of Income
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Consolidated Statement of Shareholders' Investment
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
Financial Statement Schedules filed herewith:
Schedule II: Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable
or not required, or because the required information is shown
either in the financial statements or in the notes thereto.
(b) Reports on Form 8-K
-------------------
None.
(c) Exhibits
--------
See Exhibit Index on the page immediately preceding exhibits.
15PAGE
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: March 18, 1998 THERMO CARDIOSYSTEMS INC.
By: Victor L. Poirier
-----------------------------
Victor L. Poirier
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the Registrant and in the capacities indicated, as of March 17, 1998.
Signature Title
--------- -----
By: Victor L. Poirier President, Chief Executive Officer, and
------------------------ Director
Victor L. Poirier
By: John N. Hatsopoulos Chief Financial Officer and Senior Vice
------------------------ President
John N. Hatsopoulos
By: Paul F. Kelleher Chief Accounting Officer
------------------------
Paul F. Kelleher
By: John W. Wood Jr. Chairman of the Board and Director
------------------------
John W. Wood Jr.
By: Walter J. Bornhorst Director
------------------------
Walter J. Bornhorst
By: Elias P. Gyftopoulos Director
------------------------
Elias P. Gyftopoulos
By: Leonard Laster Director
------------------------
Leonard Laster
By: John T. Keiser Director
------------------------
John T. Keiser
By: Nicholas T. Zervas Director
------------------------
Nicholas T. Zervas
16PAGE
<PAGE>
Report of Independent Public Accountants
----------------------------------------
To the Shareholders and Board of Directors of Thermo Cardiosystems Inc.:
We have audited, in accordance with generally accepted auditing
standards, the financial statements included in Thermo Cardiosystems
Inc.'s Annual Report to Shareholders incorporated by reference in this
Form 10-K, and have issued our report thereon dated February 12, 1998.
Our audits were made for the purpose of forming an opinion on those
statements taken as a whole. The schedule listed in Item 14 on page 15 is
the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commission's rules
and is not part of the basic financial statements. The schedule has been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in relation
to the basic financial statements taken as a whole.
Arthur Andersen LLP
Boston, Massachusetts
February 12, 1998
17PAGE
<PAGE>
SCHEDULE II
THERMO CARDIOSYSTEMS INC.
Valuation and Qualifying Accounts
(In thousands)
Balance at Provision Balance
Beginning Charged to Accounts at End
Description of Year Expense Written-off of Year
------------------------------------------------------------------------
Allowance for Doubtful
Accounts
Year Ended Jan. 3, 1998 $736 $120 $ (23) $833
Year Ended Dec. 28, 1996 $571 $165 $ - $736
Year Ended Dec. 30, 1995 $493 $120 $ (42) $571
18PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
2 Agreement and Plan of Reorganization among Thermo
Cardiosystems Inc., ITC Acquisition Corp., Thermo
Electron Corporation, ITC Holdings Inc., and
International Technidyne Corporation dated as of
May 2, 1997 (filed as Exhibit 2.1 to the
Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 29, 1997 [File No. 1-10114] and
incorporated herein by reference).
3.1 Articles of Organization, as filed on August 18, 1988, and
as amended on October 26, 1988, January 6, 1989, and May
23, 1990 (filed as Exhibit 3(a) to the Registrant's
Registration Statement on Form S-1 [Reg. No. 33-34737] and
incorporated herein by reference) and as amended on October
25, 1993 (filed as Exhibit 3(c) to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended October
2, 1993 [File No. 1-10114] and incorporated herein by
reference).
3.2 By-Laws of the Registrant (filed as Exhibit 3(b) to
the Registrant's Registration Statement on Form S-1
[Reg. No. 33-25144] and incorporated herein by
reference).
4.1 Form of Guarantee Agreement between the Registrant
and Thermo Electron (filed as Exhibit 4(b) to the
Registrant's Registration Statement on Form S-1
[Reg. No. 33-25144] and incorporated herein by
reference).
4.2 Form of Amendment Number 1 to Guarantee Agreement
between the Registrant and Thermo Electron (filed
as Exhibit 4(e) to the Registrant's Registration
Statement on Form S-1 [Reg. No. 33-34737] and
incorporated herein by reference).
4.3 Fiscal Agency Agreement dated January 5, 1993,
among Thermo Electron, the Registrant, and Chemical
Bank (filed as Exhibit 4.11 to the Registrant's
Annual Report on Form 10-K for the fiscal year
ended January 1, 1994 [File No. 1-10114] and
incorporated herein by reference).
4.4 Guarantee Reimbursement Agreement dated February 7,
1994, among the Registrant, Thermo Voltek Corp.,
Thermedics, and Thermo Electron (filed as Exhibit
4.4 to Thermedics' Annual Report on Form 10-K for
the fiscal year ended January 1, 1994 [File No.
1-9567] and incorporated herein by reference).
19PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
4.5 Fiscal Agency Agreement dated as of May 14, 1997,
among the Registrant, Thermo Electron Corporation,
and Bankers Trust Company as fiscal agent relating
to $70 million principal amount of 4 3/4%
Convertible Subordinated Debentures due 2004 (filed
as Exhibit 4 to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended June 28, 1997
[File No. 1-10114] and incorporated herein by
reference).
10.1 Amended and Restated Corporate Services Agreement
dated January 3, 1993, between Thermo Electron and
the Registrant (filed as Exhibit 10(b) to the
Registrant's Annual Report on Form 10-K for the
year ended January 2, 1993 [File No. 1-10114] and
incorporated herein by reference).
10.2 Sublease dated August 19, 1988, between the
Registrant and Thermedics, as amended by Amendment
No. 1 dated January 1, 1990 (filed as Exhibit 10(c)
to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 30, 1989 [File No.
1-10114] and incorporated herein by reference).
10.3 Form of Indemnification Agreement between the
Registrant and its officers and directors (filed as
Exhibit 10(d) to the Registrant's Registration
Statement on Form S-1 [Reg. No. 33-25144] and
incorporated herein by reference).
10.4 Thermo Electron Corporate Charter, as amended and
restated effective January 3, 1993 (filed as
Exhibit 10(e) to the Registrant's Annual Report on
Form 10-K for the fiscal year ended January 2, 1993
[File No. 1-10114] and incorporated herein by
reference).
10.5 Intellectual Property Cross-License Agreement
between Thermedics and the Registrant dated August
19, 1988 (filed as Exhibit 10(i) to the
Registrant's Registration Statement on Form S-1
[Reg. No. 33-25144] and incorporated herein by
reference).
10.6 Agreement dated May 26, 1993, between The Polymer
Technology Group Incorporated and the Registrant
(filed as Exhibit 10(cc) to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended
July 3, 1993 [File No. 1-10114] and incorporated
herein by reference).
20PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
10.7 Amended and Restated Master Repurchase Agreement
dated July 2, 1996, between the Registrant and
Thermo Electron (filed as Exhibit 10.7 to the
Registrant's Annual Report on Form 10-K for the
fiscal year ended December 28, 1996 [File No.
1-10114] and incorporated herein by reference).
10.8-10.17 Reserved.
10.18 Equity Incentive Plan of the Registrant (filed as
Attachment A to the Proxy Statement dated May 5,
1994, of the Registrant [File No. 1-10114] and
incorporated herein by reference).
10.19 Deferred Compensation Plan for Directors of the
Registrant (filed as Exhibit 10(h) to the
Registrant's Registration Statement on Form S-1
[Reg. No. 33-25144] and incorporated herein by
reference).
10.20 Directors Stock Option Plan of the Registrant
(filed as Exhibit 10.20 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1994 [File No. 1-10114] and
incorporated herein by reference).
10.21 Incentive Stock Option Plan of the Registrant
(filed as Exhibit 10(f) to the Registrant's
Registration Statement on Form S-1 [Reg. No.
33-25144] and incorporated herein by reference).
(Maximum number of shares issuable in the aggregate
under this plan and the Registrant's Nonqualified
Stock Option Plan is 1,715,625 shares, after
adjustment to reflect share increase approved in
1992, 3-for-2 stock split effected in January 1990,
5-for-4 stock split effected in May 1990, 2-for-1
stock split effected in November 1993, and 3-for-2
stock split effected in May 1996.)
10.22 Nonqualified Stock Option Plan of the Registrant
(filed as Exhibit 10(g) to the Registrant's
Registration Statement on Form S-1 [Reg. No.
33-25144] and incorporated herein by reference).
(Maximum number of shares issuable in the aggregate
under this plan and the Registrant's Incentive
Stock Option Plan is 1,715,625 shares, after
adjustment to reflect share increase approved in
1992, 3-for-2 stock split effected in January 1990,
5-for-4 stock split effected in May 1990, 2-for-1
stock split effected in November 1993, and 3-for-2
stock split effected in May 1996.)
21PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
In addition to the stock-based compensation plans
of the Registrant, the executive officers of the
Registrant may be granted awards under stock-based
compensation plans of Thermo Electron and
Thermedics for services rendered to the Registrant
or to such affiliated corporations. The terms of
such plans are substantially the same as those of
the Registrant's Equity Incentive Plan.
10.23 Restated Stock Holdings Assistance Plan and Form of
Promissory Note.
10.24 Amended and Restated Master Guarantee Reimbursement
and Loan Agreement dated as of December 18, 1997,
between Thermo Electron and the Registrant.
10.25 Amended and Restated Master Guarantee Reimbursement
and Loan Agreement dated as of December 18, 1997,
between Thermedics and the Registrant.
13 Annual Report to Shareholders for the year ended
January 3, 1998 (only those portions incorporated
herein by reference).
21 Subsidiaries of the Registrant.
23 Consent of Arthur Andersen LLP.
27.1 Financial Data Schedule for the year ended January
3, 1998.
27.2 Financial Data Schedule for the year ended December
30, 1995 (restated for the adoption of SFAS No. 128
and the acquisition of International Technidyne
Corporation).
27.3 Financial Data Schedule for the quarter ended March
30, 1996 (restated for the adoption of SFAS No. 128
and the acquisition of International Technidyne
Corporation).
27.4 Financial Data Schedule for the quarter ended June
29, 1996 (restated for the adoption of SFAS No. 128
and the acquisition of International Technidyne
Corporation).
22PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
27.5 Financial Data Schedule for the quarter ended
September 28, 1996 (restated for the adoption of
SFAS No. 128 and the acquisition of International
Technidyne Corporation).
27.6 Financial Data Schedule for the year ended December
28, 1996 (restated for the adoption of SFAS No. 128
and the acquisition of International Technidyne
Corporation).
99 Opinion of Cazenove Incorporated dated May 2, 1997
(filed as Exhibit 99 to the Registrant's Current
Report on Form 8-K dated May 2, 1997 [File No.
1-10114] and incorporated herein by reference).
EXHIBIT 10.23
THERMO CARDIOSYSTEMS INC.
RESTATED STOCK HOLDING 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 Stock Holding
Policy.
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.
Stock Holding Policy: The Stock Holding Policy of the
Company, as adopted by the Committee and as in effect 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 Holding
Assistance Plan, as amended from time to time.
SECTION 3. Administration.
The Plan and the Stock Holding Policy shall be administered
by the Committee, which shall have authority to interpret the
Plan and the Stock Holding Policy 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
PAGE
<PAGE>
interpretations and decisions with regard to the Plan and the
Stock Holding Policy and such rules and regulations as may be
established thereunder shall be final and conclusive. The
Committee may correct any defect or supply any omission or
reconcile any inconsistency in the Plan or the Stock Holding
Policy, 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 Stock Holding Policy 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 Stock Holding Policy 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 Stock Holding Policy.
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 Stock
Holding Policy, 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 on the fifth anniversary of the date of
PAGE
<PAGE>
the Loan, provided that the Committee may, in its sole and
absolute discretion, authorize such other maturity and repayment
schedule as the Committee may determine. Each Loan shall also
become immediately due and payable in full, without demand, upon
the occurrence of any of the events 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.
SECTION 7. Amendment and Termination of the Plan.
The Committee may from time to time alter or amend the Plan
or the Stock Holding Policy in any respect, or terminate the Plan
or the Stock Holding Policy 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 Stock Holding Policy 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 Stock Holding Policy shall become effective
upon approval and adoption by the Committee.
PAGE
<PAGE>
EXHIBIT A TO STOCK HOLDING ASSISTANCE PLAN
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 to the Company
from the Employee's annual cash incentive compensation (referred
to as bonus), beginning with the first such bonus payment to
occur after the date of this Note and on each of the next four
bonus payment dates occurring prior to the Maturity Date, such
amount as may be designated by the Company. Any amount remaining
unpaid under this Note 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 Holding 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;
PAGE
<PAGE>
(c) the failure of the Employee to pay his or her
debts as they become due, the insolvency of the Employee,
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
Holding Assistance Plan and shall be governed by and construed in
accordance with, such Plan and the laws of the State of
Massachusetts and shall have the effect of a sealed instrument.
_______________________________
Employee Name: _________________
________________________
Witness
EXHIBIT 10.24
AMENDED AND RESTATED MASTER GUARANTEE REIMBURSEMENT
AND LOAN AGREEMENT
This AGREEMENT is entered into as of the 18th day of
December, 1997 by and among Thermo Electron Corporation (the
"Parent") and those of its subsidiaries that join in this
Agreement by executing the signature page hereto (the "Majority
Owned Subsidiaries").
WITNESSETH:
WHEREAS, the Majority Owned Subsidiaries and their
wholly-owned subsidiaries wish to enter into various financial
transactions, such as convertible or nonconvertible debt, loans,
and equity offerings, and other contractual arrangements with
third parties (the "Underlying Obligations") and may provide
credit support to, on behalf of or for the benefit of, other
subsidiaries of the Parent ("Credit Support Obligations");
WHEREAS, the Majority Owned Subsidiaries and the Parent
acknowledge that the Majority Owned Subsidiaries and their
wholly-owned subsidiaries may be unable to enter into many kinds
of Underlying Obligations without a guarantee of their
performance thereunder from the Parent (a "Parent Guarantee") or
without obtaining Credit Support Obligations from other Majority
Owned Subsidiaries;
WHEREAS, the Majority Owned Subsidiaries and their
wholly-owned subsidiaries may borrow funds from the Parent, and
the Parent may loan funds or provide credit to the Majority Owned
Subsidiaries and their wholly-owned subsidiaries, on a short-term
and unsecured basis;
WHEREAS, certain Majority Owned Subsidiaries ("Second Tier
Majority Owned Subsidiaries ") may themselves be majority owned
subsidiaries of other Majority Owned Subsidiaries ("First Tier
Majority Owned Subsidiaries");
WHEREAS, for various reasons, Parent Guarantees of a Second
Tier Majority Owned Subsidiary's Underlying Obligations may be
demanded and given without the respective First Tier Majority
Owned Subsidiary also issuing a guarantee of such Underlying
Obligation;
WHEREAS, the Parent may itself make a loan or provide other
credit to a Second Tier Majority Owned Subsidiary or its
wholly-owned subsidiaries under circumstances where the
applicable First Tier Majority Owned Subsidiary does not provide
such credit; and
WHEREAS, the Parent is willing to consider continuing to
issue Parent Guarantees and providing credit, and the Majority
Owned Subsidiaries are willing to consider continuing to provide
PAGE
<PAGE>
Credit Support Obligations and to borrow funds, on the terms and
conditions set forth below;
NOW, THEREFORE, in consideration of the foregoing and other
good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged by each party hereto, the parties
agree as follows:
1. If the Parent provides a Parent Guarantee of an Underlying
Obligation, and the beneficiary(ies) of the Parent Guarantee
enforce the Parent Guarantee, or the Parent performs under
the Parent Guarantee for any other reason, then the Majority
Owned Subsidiary that is obligated, either directly or
indirectly through a wholly-owned subsidiary, under such
Underlying Obligation shall indemnify and save harmless the
Parent from any liability, cost, expense or damage
(including reasonable attorneys' fees) suffered by the
Parent as a result of the Parent Guarantee. If the
Underlying Obligation is issued by a Second Tier Majority
Owned Subsidiary or a wholly-owned subsidiary thereof, and
such Second Tier Majority Owned Subsidiary is unable to
fully indemnify the Parent (because of the poor financial
condition of such Second Tier Majority Owned Subsidiary, or
for any other reason), then the First Tier Majority Owned
Subsidiary that owns the majority of the stock of such
Second Tier Majority Owned Subsidiary shall indemnify and
save harmless the Parent from any remaining liability, cost,
expense or damage (including reasonable attorneys' fees)
suffered by the Parent as a result of the Parent Guarantee.
If a Majority Owned Subsidiary or a wholly-owned subsidiary
thereof provides a Credit Support Obligation for any
subsidiary of the Parent, other than a subsidiary of such
Majority Owned Subsidiary, and the beneficiary(ies) of the
Credit Support Obligation enforce the Credit Support
Obligation, or the Majority Owned Subsidiary or its
wholly-owned subsidiary performs under the Credit Support
Obligation for any other reason, then the Parent shall
indemnify and save harmless the Majority Owned Subsidiary or
its wholly-owned subsidiary, as applicable, from any
liability, cost, expense or damage (including reasonable
attorneys' fees) suffered by the Majority Owned Subsidiary
or its wholly-owned subsidiary, as applicable, as a result
of the Credit Support Obligation. Without limiting the
foregoing, Credit Support Obligations include the deposit of
funds by a Majority Owned Subsidiary or a wholly-owned
subsidiary thereof in a credit arrangement with a banking
facility whereby such funds are available to the banking
facility as collateral for overdraft obligations of other
Majority Owned Subsidiaries or their subsidiaries also
participating in the credit arrangement with such banking
facility.
2. For purposes of this Agreement, the term "guarantee" shall
include not only a formal guarantee of an obligation, but
PAGE
<PAGE>
also any other arrangement where the Parent is liable for
the obligations of a Majority Owned Subsidiary or its
wholly-owned subsidiaries. Such other arrangements include
(a) representations, warranties and/or covenants or other
obligations joined in by the Parent, whether on a joint or
joint and several basis, for the benefit of the Majority
Owned Subsidiary or its wholly-owned subsidiaries and (b)
responsibility of the Parent by operation of law for the
acts and omissions of the Majority Owned Subsidiary or its
wholly-owned subsidiaries, including controlling person
liability under securities and other laws.
3. Promptly after the Parent receives notice that a beneficiary
of a Parent Guarantee is seeking to enforce such Parent
Guarantee, the Parent shall notify the Majority Owned
Subsidiary(s) obligated, either directly or indirectly
through a wholly-owned subsidiary, under the relevant
Underlying Obligation. Such Majority Owned Subsidiary(s) or
wholly-owned subsidiary thereof, as applicable, shall have
the right, at its own expense, to contest the claim of such
beneficiary. If a Majority Owned Subsidiary or wholly-owned
subsidiary thereof, as applicable, is contesting the claim
of such beneficiary, the Parent will not perform under the
relevant Parent Guarantee unless and until, in the Parent's
reasonable judgment, the Parent is obligated under the terms
of such Parent Guarantee to perform. Subject to the
foregoing, any dispute between a Majority Owned Subsidiary
or wholly-owned subsidiary thereof, as applicable, and a
beneficiary of a Parent Guarantee shall not affect such
Majority Owned Subsidiary's obligation to promptly indemnify
the Parent hereunder. Promptly after a Majority Owned
Subsidiary or wholly-owned subsidiary thereof, as
applicable, receives notice that a beneficiary of a Credit
Support Obligation is seeking to enforce such Credit Support
Obligation, the Majority Owned Subsidiary shall notify the
Parent. The Parent shall have the right, at its own
expense, to contest the claim of such beneficiary. If the
Parent or the subsidiary of the Parent on whose behalf the
Credit Support Obligation is given is contesting the claim
of such beneficiary, the Majority Owned Subsidiary or
wholly-owned subsidiary thereof, as applicable, will not
perform under the relevant Credit Support Obligation unless
and until, in the Majority Owned Subsidiary's reasonable
judgment, the Majority Owned Subsidiary or wholly-owned
subsidiary thereof, as applicable, is obligated under the
terms of such Credit Support Obligation to perform. Subject
to the foregoing, any dispute between the Parent or the
subsidiary of the Parent on whose behalf the Credit Support
Obligation was given, on the one hand, and a beneficiary of
a Credit Support Obligation, on the other, shall not affect
the Parent's obligation to promptly indemnify the Majority
Owned Subsidiary or its wholly-owned subsidiary, as
applicable, hereunder.
PAGE
<PAGE>
4. Upon the request of a Majority Owned Subsidiary, the Parent
may make loans and advances to the Majority Owned Subsidiary
or its wholly-owned subsidiaries on a short-term, revolving
credit basis, from time to time in such amounts as mutually
determined by the Parent and the Majority Owned Subsidiary.
The aggregate principal amount of such loans and advances
shall be reflected on the books and records of the Majority
Owned Subsidiary (or wholly-owned subsidiary, as applicable)
and the Parent. All such loans and advances shall be on an
unsecured basis unless specifically provided otherwise in
loan documents executed at that time. The Majority Owned
Subsidiary or its wholly-owned subsidiaries, as applicable,
shall pay interest on the aggregate unpaid principal amount
of such loans from time to time outstanding at a rate
("Interest Rate") equal to the rate of the Commercial Paper
Composite Rate for 90-day maturities as reported by Merrill
Lynch Capital Markets, as an average of the last five
business days of such Majority Owned Subsidiary's latest
fiscal quarter then ended, plus twenty-five (25) basis
points. The Interest Rate shall be adjusted on the first
business day of each fiscal quarter of such Majority Owned
Subsidiary pursuant to the Interest Rate formula contained
in the preceding sentence and shall be in effect for the
entirety of such fiscal quarter. Interest shall be computed
on a 360-day basis. The aggregate principal amount
outstanding and accrued interest thereon shall be payable on
demand. The principal and accrued interest may be paid by
the Majority Owned Subsidiaries or their wholly-owned
subsidiaries, as applicable, at any time or from time to
time, in whole or in part, without premium or penalty. All
payments shall be applied first to accrued interest and then
to principal. Principal and interest shall be payable in
lawful money of the United States of America, in immediately
available funds, at the principal office of the Parent or at
such other place as the Parent may designate from time to
time in writing to the Majority Owned Subsidiary. The
unpaid principal amount of any such borrowings, and accrued
interest thereon, shall become immediately due and payable,
without demand, upon the failure of the Majority Owned
Subsidiary or its wholly-owned subsidiary, as applicable, to
pay its debts as they become due, the insolvency of the
Majority Owned Subsidiary or its wholly-owned subsidiary, as
applicable, the filing by or against the Majority Owned
Subsidiary or its wholly-owned subsidiary, as applicable, of
any petition under the U.S. Bankruptcy Code (or the filing
of any similar petition under the insolvency law of any
jurisdiction), or the making by the Majority Owned
Subsidiary or its wholly-owned subsidiary, as applicable, 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 Majority Owned Subsidiary
or its wholly-owned subsidiary, as applicable. In case any
payments of principal and interest shall not be paid when
PAGE
<PAGE>
due, the Majority Owned Subsidiary or its wholly-owned
subsidiary, as applicable, further promises to pay all cost
of collection, including reasonable attorneys' fees.
5. If the Parent makes a loan or provides other credit ("Credit
Extension") to a Second Tier Majority Owned Subsidiary, the
First Tier Majority Owned Subsidiary that owns the majority
of the stock of such Second Tier Majority Owned Subsidiary
hereby guarantees the Second Tier Majority Owned
Subsidiary's obligations to the Parent thereunder. Such
guaranty shall be enforced only after the Parent, in its
reasonable judgment, determines that the Second Tier
Majority Owned Subsidiary is unable to fully perform its
obligations under the Credit Extension. If the Parent
provides Credit Extension to a wholly-owned subsidiary of a
Second Tier Majority Owned Subsidiary, the Second Tier
Majority Owned Subsidiary hereby guarantees it wholly-owned
subsidiary's obligations to the Parent thereunder and the
First Tier Majority Owned Subsidiary that owns the majority
of the stock of such Second Tier Majority Owned Subsidiary
hereby guarantees the Second Tier Majority Owned
Subsidiary's obligations to the Parent hereunder. Such
guaranty by the First Tier Majority Owned Subsidiary shall
be enforced only after the Parent, in its reasonable
judgment, determines that the Second Tier Majority Owned
Subsidiary is unable to fully perform its guaranty
obligation hereunder.
6. All payments required to be made by a Majority Owned
Subsidiary or its wholly-owned subsidiaries, as applicable,
shall be made within two days after receipt of notice from
the Parent. All payments required to be made by the Parent
shall be made within two days after receipt of notice from
the Majority Owned Subsidiary.
7. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of
Massachusetts applicable to contracts made and performed
therein.
PAGE
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement
to be executed by their duly authorized officers as of the date
first above written.
THERMO ELECTRON CORPORATION
By: _____________________________
Melissa F.Riordan
Title: Treasurer
THERMO CARDIOSYSTEMS INC.
By: _____________________________
Victor L. Poirier
Title: President
EXHIBIT 10.25
AMENDED AND RESTATED MASTER GUARANTEE REIMBURSEMENT
AND LOAN AGREEMENT
This AGREEMENT is entered into as of the 18th day of
December, 1997 by and among Thermedics Inc. (the "Parent") and
those of its subsidiaries that join in this Agreement by
executing the signature page hereto (the "Majority Owned
Subsidiaries").
WITNESSETH:
WHEREAS, the Majority Owned Subsidiaries and their
wholly-owned subsidiaries wish to enter into various financial
transactions, such as convertible or nonconvertible debt, loans,
and equity offerings, and other contractual arrangements with
third parties (the "Underlying Obligations") and may provide
credit support to, on behalf of or for the benefit of, other
subsidiaries of the Parent ("Credit Support Obligations");
WHEREAS, the Majority Owned Subsidiaries and the Parent
acknowledge that the Majority Owned Subsidiaries and their
wholly-owned subsidiaries may be unable to enter into many kinds
of Underlying Obligations without a guarantee of their
performance thereunder from the Parent (a "Parent Guarantee") or
without obtaining Credit Support Obligations from other Majority
Owned Subsidiaries;
WHEREAS, the Majority Owned Subsidiaries and their
wholly-owned subsidiaries may borrow funds from the Parent, and
the Parent may loan funds or provide credit to the Majority Owned
Subsidiaries and their wholly-owned subsidiaries, on a short-term
and unsecured basis; and
WHEREAS, the Parent is willing to consider continuing to
issue Parent Guarantees and providing credit, and the Majority
Owned Subsidiaries are willing to consider continuing to provide
Credit Support Obligations and to borrow funds, on the terms and
conditions set forth below;
NOW, THEREFORE, in consideration of the foregoing and other
good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged by each party hereto, the parties
agree as follows:
1. If the Parent provides a Parent Guarantee of an Underlying
Obligation, and the beneficiary(ies) of the Parent Guarantee
enforce the Parent Guarantee, or the Parent performs under
the Parent Guarantee for any other reason, then the Majority
Owned Subsidiary that is obligated, either directly or
indirectly through a wholly-owned subsidiary, under such
Underlying Obligation shall indemnify and save harmless the
Parent from any liability, cost, expense or damage
(including reasonable attorneys' fees) suffered by the
PAGE
<PAGE>
Parent as a result of the Parent Guarantee. If a Majority
Owned Subsidiary or a wholly-owned subsidiary thereof
provides a Credit Support Obligation for any subsidiary of
the Parent, other than a subsidiary of such Majority Owned
Subsidiary, and the beneficiary(ies) of the Credit Support
Obligation enforce the Credit Support Obligation, or the
Majority Owned Subsidiary or its wholly-owned subsidiary
performs under the Credit Support Obligation for any other
reason, then the Parent shall indemnify and save harmless
the Majority Owned Subsidiary or its wholly-owned
subsidiary, as applicable, from any liability, cost, expense
or damage (including reasonable attorneys' fees) suffered by
the Majority Owned Subsidiary or its wholly-owned
subsidiary, as applicable, as a result of the Credit Support
Obligation. Without limiting the foregoing, Credit Support
Obligations include the deposit of funds by a Majority Owned
Subsidiary or a wholly-owned subsidiary thereof in a credit
arrangement with a banking facility whereby such funds are
available to the banking facility as collateral for
overdraft obligations of other Majority Owned Subsidiaries
or their subsidiaries also participating in the credit
arrangement with such banking facility.
2. For purposes of this Agreement, the term "guarantee" shall
include not only a formal guarantee of an obligation, but
also any other arrangement where the Parent is liable for
the obligations of a Majority Owned Subsidiary or its
wholly-owned subsidiaries. Such other arrangements include
(a) representations, warranties and/or covenants or other
obligations joined in by the Parent, whether on a joint or
joint and several basis, for the benefit of the Majority
Owned Subsidiary or its wholly-owned subsidiaries and (b)
responsibility of the Parent by operation of law for the
acts and omissions of the Majority Owned Subsidiary or its
wholly-owned subsidiaries, including controlling person
liability under securities and other laws.
3. Promptly after the Parent receives notice that a beneficiary
of a Parent Guarantee is seeking to enforce such Parent
Guarantee, the Parent shall notify the Majority Owned
Subsidiary(s) obligated, either directly or indirectly
through a wholly-owned subsidiary, under the relevant
Underlying Obligation. Such Majority Owned Subsidiary(s) or
wholly-owned subsidiary thereof, as applicable, shall have
the right, at its own expense, to contest the claim of such
beneficiary. If a Majority Owned Subsidiary or wholly-owned
subsidiary thereof, as applicable, is contesting the claim
of such beneficiary, the Parent will not perform under the
relevant Parent Guarantee unless and until, in the Parent's
reasonable judgment, the Parent is obligated under the terms
of such Parent Guarantee to perform. Subject to the
foregoing, any dispute between a Majority Owned Subsidiary
or wholly-owned subsidiary thereof, as applicable, and a
beneficiary of a Parent Guarantee shall not affect such
PAGE
<PAGE>
Majority Owned Subsidiary's obligation to promptly indemnify
the Parent hereunder. Promptly after a Majority Owned
Subsidiary or wholly-owned subsidiary thereof, as
applicable, receives notice that a beneficiary of a Credit
Support Obligation is seeking to enforce such Credit Support
Obligation, the Majority Owned Subsidiary shall notify the
Parent. The Parent shall have the right, at its own
expense, to contest the claim of such beneficiary. If the
Parent or the subsidiary of the Parent on whose behalf the
Credit Support Obligation is given is contesting the claim
of such beneficiary, the Majority Owned Subsidiary or
wholly-owned subsidiary thereof, as applicable, will not
perform under the relevant Credit Support Obligation unless
and until, in the Majority Owned Subsidiary's reasonable
judgment, the Majority Owned Subsidiary or wholly-owned
subsidiary thereof, as applicable, is obligated under the
terms of such Credit Support Obligation to perform. Subject
to the foregoing, any dispute between the Parent or the
subsidiary of the Parent on whose behalf the Credit Support
Obligation was given, on the one hand, and a beneficiary of
a Credit Support Obligation, on the other, shall not affect
the Parent's obligation to promptly indemnify the Majority
Owned Subsidiary or its wholly-owned subsidiary, as
applicable, hereunder.
4. Upon the request of a Majority Owned Subsidiary, the Parent
may make loans and advances to the Majority Owned Subsidiary
or its wholly-owned subsidiaries on a short-term, revolving
credit basis, from time to time in such amounts as mutually
determined by the Parent and the Majority Owned Subsidiary.
The aggregate principal amount of such loans and advances
shall be reflected on the books and records of the Majority
Owned Subsidiary (or wholly-owned subsidiary, as applicable)
and the Parent. All such loans and advances shall be on an
unsecured basis unless specifically provided otherwise in
loan documents executed at that time. The Majority Owned
Subsidiary or its wholly-owned subsidiaries, as applicable,
shall pay interest on the aggregate unpaid principal amount
of such loans from time to time outstanding at a rate
("Interest Rate") equal to the rate of the Commercial Paper
Composite Rate for 90-day maturities as reported by Merrill
Lynch Capital Markets, as an average of the last five
business days of such Majority Owned Subsidiary's latest
fiscal quarter then ended, plus twenty-five (25) basis
points. The Interest Rate shall be adjusted on the first
business day of each fiscal quarter of such Majority Owned
Subsidiary pursuant to the Interest Rate formula contained
in the preceding sentence and shall be in effect for the
entirety of such fiscal quarter. Interest shall be computed
on a 360-day basis. The aggregate principal amount
outstanding and accrued interest thereon shall be payable on
demand. The principal and accrued interest may be paid by
the Majority Owned Subsidiaries or their wholly-owned
subsidiaries, as applicable, at any time or from time to
PAGE
<PAGE>
time, in whole or in part, without premium or penalty. All
payments shall be applied first to accrued interest and then
to principal. Principal and interest shall be payable in
lawful money of the United States of America, in immediately
available funds, at the principal office of the Parent or at
such other place as the Parent may designate from time to
time in writing to the Majority Owned Subsidiary. The
unpaid principal amount of any such borrowings, and accrued
interest thereon, shall become immediately due and payable,
without demand, upon the failure of the Majority Owned
Subsidiary or its wholly-owned subsidiary, as applicable, to
pay its debts as they become due, the insolvency of the
Majority Owned Subsidiary or its wholly-owned subsidiary, as
applicable, the filing by or against the Majority Owned
Subsidiary or its wholly-owned subsidiary, as applicable, of
any petition under the U.S. Bankruptcy Code (or the filing
of any similar petition under the insolvency law of any
jurisdiction), or the making by the Majority Owned
Subsidiary or its wholly-owned subsidiary, as applicable, 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 Majority Owned Subsidiary
or its wholly-owned subsidiary, as applicable. In case any
payments of principal and interest shall not be paid when
due, the Majority Owned Subsidiary or its wholly-owned
subsidiary, as applicable, further promises to pay all cost
of collection, including reasonable attorneys' fees.
5. All payments required to be made by a Majority Owned
Subsidiary or its wholly-owned subsidiaries, as applicable,
shall be made within two days after receipt of notice from
the Parent. All payments required to be made by the Parent
shall be made within two days after receipt of notice from
the Majority Owned Subsidiary.
6. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of
Massachusetts applicable to contracts made and performed
therein.
PAGE
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement
to be executed by their duly authorized officers as of the date
first above written.
THERMEDICS INC.
By: _____________________________
John W.Wood Jr.
Title: President
THERMO CARDIOSYSTEMS INC.
By: _____________________________
Victor L. Poirier
Title: President
Exhibit 13
THERMO CARDIOSYSTEMS INC.
Consolidated Financial Statements
1997
PAGE
<PAGE>
Thermo Cardiosystems Inc. 1997 Financial Statements
Consolidated Statement of Income
(In thousands except per share amounts) 1997 1996 1995
-----------------------------------------------------------------------
Revenues (Note 11) $62,834 $63,962 $52,880
------- ------- -------
Costs and Operating Expenses:
Cost of revenues 27,143 27,132 22,455
Selling, general, and administrative
expenses (Note 7) 16,548 14,203 12,164
Research and development expenses 8,682 7,498 7,111
Write-off of acquired technology
(Note 3) - 4,909 -
------- ------- -------
52,373 53,742 41,730
------- ------- -------
Operating Income 10,461 10,220 11,150
Interest Income 6,476 5,297 5,117
Interest Expense (Note 6) (2,244) (80) (274)
Gain on Sale of Investments, Net
(Note 2) 5 919 421
------- ------- -------
Income Before Provision for Income
Taxes 14,698 16,356 16,414
Provision for Income Taxes (Note 5) 5,679 6,326 5,279
------- ------- -------
Net Income $ 9,019 $10,030 $11,135
======= ======= =======
Earnings per Share (Note 12):
Basic $ .23 $ .25 $ .29
======= ======= =======
Diluted $ .23 $ 25 $ .27
======= ======= =======
Weighted Average Shares (Note 12):
Basic 39,482 39,924 38,358
======= ======= =======
Diluted 39,765 40,929 40,650
======= ======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
2PAGE
<PAGE>
Thermo Cardiosystems Inc. 1997 Financial Statements
Consolidated Balance Sheet
(In thousands) 1997 1996
------------------------------------------------------------------------
Assets
Current Assets:
Cash and cash equivalents $ 71,158 $ 1,157
Short-term available-for-sale investments,
at quoted market value (amortized cost of
$45,443 and $46,511; Note 2) 45,589 46,455
Accounts receivable, less allowances of $833
and $736 11,377 13,490
Inventories 14,519 13,870
Prepaid and refundable income taxes (Note 5) 3,962 4,202
Prepaid expenses and other current assets 342 43
-------- --------
146,947 79,217
-------- --------
Property, Plant, and Equipment, at Cost, Net 8,481 8,500
-------- --------
Long-term Available-for-sale Investments,
at Quoted Market Value (amortized cost
of $12,655 and $33,929; Note 2) 12,665 33,920
-------- --------
Prepaid Income Taxes (Note 5) 2,749 2,704
-------- --------
Other Assets 2,366 637
-------- --------
$173,208 $124,978
======== ========
3PAGE
<PAGE>
Thermo Cardiosystems Inc. 1997 Financial Statements
Consolidated Balance Sheet (continued)
(In thousands except share amounts) 1997 1996
------------------------------------------------------------------------
Liabilities and Shareholders' Investment
Current Liabilities:
Current maturity of subordinated convertible
obligations (Note 6) $ - $ 3,755
Accounts payable 2,291 3,502
Accrued payroll and employee benefits 2,749 2,675
Accrued warranty expenses 1,100 770
Accrued income taxes 912 102
Other accrued expenses 2,885 3,018
Due to parent company and Thermo Electron
Corporation 308 67
-------- --------
10,245 13,889
-------- --------
Subordinated Convertible Debentures (Note 6) 70,000 -
-------- --------
Commitments and Contingency (Notes 7 and 8)
Shareholders' Investment (Notes 4 and 9):
Common stock, $.10 par value, 100,000,000
shares authorized; 40,520,521 and 40,227,962
shares issued 4,052 4,023
Capital in excess of par value 98,252 93,234
Retained earnings 32,096 22,727
Treasury stock at cost, 1,502,474 and 235,509
shares (41,563) (8,854)
Cumulative translation adjustment 26 -
Net unrealized gain (loss) on available-for-sale
investments (Note 2) 100 (41)
-------- --------
92,963 111,089
-------- --------
$173,208 $124,978
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
4PAGE
<PAGE>
Thermo Cardiosystems Inc. 1997 Financial Statements
Consolidated Statement of Cash Flows
(In thousands) 1997 1996 1995
------------------------------------------------------------------------
Operating Activities:
Net income $ 9,019 $ 10,030 $ 11,135
Adjustments to reconcile net income
to net cash provided by operating
activities:
Write-off of acquired technology
(Note 3) - 4,909 -
Depreciation and amortization 2,571 2,182 2,013
Provision for losses on accounts
receivable 120 165 120
Gain on sale of investments, net
(Note 2) (5) (919) (421)
Deferred income tax benefit (170) (1,838) (1,775)
Other noncash items (13) 60 36
Changes in current accounts,
excluding the effects of
acquisition:
Accounts receivable 1,987 (4,017) (1,045)
Inventories (658) (3,976) (3,513)
Other current assets (14) 899 (737)
Accounts payable (1,210) 458 1,045
Other current liabilities 2,396 2,586 2,316
-------- -------- --------
Net cash provided by operating
activities 14,023 10,539 9,174
-------- -------- --------
Investing Activities:
Acquisition (Note 3) - (5,013) -
Proceeds from sale and maturities
of available-for-sale investments 103,390 89,615 84,782
Purchases of available-for-sale
investments (81,043) (83,947) (92,707)
Purchases of property, plant, and
equipment (2,333) (2,570) (3,347)
Proceeds from sale of property,
plant, and equipment 107 - -
Other (70) (134) (218)
-------- -------- --------
Net cash provided by (used in)
investing activities $ 20,051 $ (2,049) $(11,490)
-------- -------- --------
5PAGE
<PAGE>
Thermo Cardiosystems Inc. 1997 Financial Statements
Consolidated Statement of Cash Flows (continued)
(In thousands) 1997 1996 1995
------------------------------------------------------------------------
Financing Activities:
Net proceeds from issuance of
subordinated convertible
debentures (Note 6) $ 68,028 $ - $ -
Purchases of Company common stock (32,957) (5,665) -
Net proceeds from issuance of Company
common stock 602 741 947
Payment of withholding taxes related
to stock option exercises (138) (1,283) (1,500)
International Technidyne transfers of
cash (to) from Thermo Electron 350 (5,567) (2,158)
-------- -------- --------
Net cash provided by (used in)
financing activities 35,885 (11,774) (2,711)
-------- -------- --------
Exchange Rate Effect on Cash 42 - -
-------- -------- --------
Increase (Decrease) in Cash and Cash
Equivalents 70,001 (3,284) (5,027)
Cash and Cash Equivalents at Beginning
of Year 1,157 4,441 9,468
-------- -------- --------
Cash and Cash Equivalents at End of Year$ 71,158 $ 1,157 $ 4,441
======== ======== ========
Cash Paid For:
Interest $ 1,672 $ - $ 29
Income taxes $ 2,961 $ 2,260 $ 3,191
Noncash Activities (Note 3):
Fair value of assets of acquired
company $ - $ 5,068 $ -
Cash paid for acquired company - (5,013) -
-------- -------- --------
Liabilities assumed of acquired
company $ - $ 55 $ -
======== ======== ========
Conversions of subordinated
obligations (Note 6) $ 3,755 $ 7,887 $ 21,808
======== ======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
6PAGE
<PAGE>
Thermo Cardiosystems Inc. 1997 Financial Statements
Consolidated Statement of Shareholders' Investment
(In thousands) 1997 1996 1995
------------------------------------------------------------------------
Common Stock, $.10 Par Value
Balance at beginning of year $ 4,023 $ 2,636 $ 2,511
Issuance of stock under employees'
and directors' stock plans 3 9 22
Conversions of subordinated
convertible obligations (Note 6) 26 54 103
Effect of three-for-two stock split - 1,324 -
-------- -------- --------
Balance at end of year 4,052 4,023 2,636
-------- -------- --------
Capital in Excess of Par Value
Balance at beginning of year 93,234 84,125 58,862
Issuance of stock under employees'
and directors' stock plans 211 452 522
Tax benefit related to employees'
and directors' stock plans 1,078 2,190 3,335
Conversions of subordinated
convertible obligations (Note 6) 3,729 7,791 21,406
Effect of three-for-two stock split - (1,324) -
-------- -------- --------
Balance at end of year 98,252 93,234 84,125
-------- -------- --------
Retained Earnings
Balance at beginning of year 22,727 18,264 9,287
Net income 9,019 10,030 11,135
International Technidyne Transfer of
cash (to) from Thermo Electron 350 (5,567) (2,158)
-------- -------- --------
Balance at end of year 32,096 22,727 18,264
-------- -------- --------
Treasury Stock
Balance at beginning of year (8,854) (2,186) (1,089)
Activity under employees' and
directors' stock plans 248 (1,003) (1,097)
Purchases of Company common stock (32,957) (5,665) -
-------- -------- --------
Balance at end of year (41,563) (8,854) (2,186)
-------- -------- --------
Cumulative Translation Adjustment
Balance at beginning of year - - -
Translation adjustment 26 - -
-------- -------- --------
Balance at end of year 26 - -
-------- -------- --------
Net Unrealized Gain (Loss) on Available-
for-sale Investments
Balance at beginning of year (41) 577 (1,189)
Change in net unrealized gain (loss)
on available-for-sale investments
(Note 2) 141 (618) 1,766
-------- -------- --------
Balance at end of year 100 (41) 577
-------- -------- --------
Total Shareholders' Investment $ 92,963 $111,089 $103,416
======== ======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
7PAGE
<PAGE>
Thermo Cardiosystems Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
Thermo Cardiosystems Inc. (the Company) is a leader in the research,
development, and manufacture of implantable left ventricular-assist
systems (LVAS). Its HeartMate(R) devices are 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.
The Company's International Technidyne Corporation subsidiary is a
leading manufacturer of near-patient, whole-blood coagulation testing
equipment and related disposables. International Technidyne also
manufactures premium-quality, single-use skin-incision devices. The
Company's Nimbus Medical Inc. subsidiary is involved in the research and
development of ventricular devices and total artificial hearts.
Relationship with Thermedics Inc. and Thermo Electron Corporation
The Company was incorporated in 1988 as a wholly owned subsidiary of
Thermedics Inc. Prior to that time, the business was conducted as a
division of Thermedics. Thermedics is a 58%-owned subsidiary of Thermo
Electron Corporation. As of January 3, 1998, Thermedics and Thermo
Electron owned a total of 23,206,320 shares of the Company's common
stock, representing 59% of such stock outstanding, including 3,355,705
shares issuable to Thermo Electron for the acquisition of International
Technidyne (Note 3).
Principles of Consolidation
The accompanying financial statements include the accounts of the
Company and its wholly owned subsidiaries. All material intercompany
accounts and transactions have been eliminated.
Fiscal Year
The Company has adopted a fiscal year ending the Saturday nearest
December 31. References to 1997, 1996, and 1995 are for the fiscal years
ended January 3, 1998, December 28, 1996, and December 30, 1995,
respectively. Fiscal year 1997 included 53 weeks; 1996 and 1995 each
included 52 weeks.
Revenue Recognition
The Company recognizes the majority of its revenues upon shipment of
its products. The Company provides a reserve for its estimate of warranty
costs at the time of shipment. Revenues and profits on long-term research
and development contracts are recognized using the
percentage-of-completion method. Revenues recorded under the
percentage-of-completion method were $1,991,000 in 1997. The
percentage-of-completion is determined by relating the actual costs
incurred to date to management's estimate of total costs to be incurred
on each contract. If a loss is indicated on any contract in process, a
provision is made currently for the entire loss. Contracts generally
provide for the billing of customers in a cost-plus-fixed-fee basis as
costs are incurred.
8PAGE
<PAGE>
Thermo Cardiosystems Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
Stock-based Compensation Plans
The Company applies Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees," and related interpretations
in accounting for its stock-based compensation plans (Note 4).
Accordingly, no accounting recognition is given to stock options granted
at fair market value until they are exercised. Upon exercise, net
proceeds, including tax benefits realized, are credited to equity.
Income Taxes
In accordance with Statement of Financial Accounting Standards (SFAS)
No. 109, "Accounting for Income Taxes," the Company recognizes deferred
income taxes based on the expected future tax consequences of differences
between the financial statement basis and the tax basis of assets and
liabilities, calculated using enacted tax rates in effect for the year in
which the differences are expected to be reflected in the tax return.
Earnings per Share
During the fourth quarter of 1997, the Company adopted SFAS No. 128,
"Earnings per Share" (Note 12). As a result, all previously reported
earnings per share have been restated and the Company is required to
report diluted earnings per share; however, diluted earnings per share
equals the Company's previously reported earnings per share for 1996 and
1995. Basic earnings per share have been computed by dividing net income
by the weighted average number of shares outstanding during the year.
Diluted earnings per share have been computed assuming the conversion of
convertible obligations and the elimination of the related interest
expense, and the exercise of stock options, as well as their related
income tax effects.
Cash and Cash Equivalents
At year-end 1997 and 1996, $70,488,000 and $1,018,000, respectively,
of the Company's cash equivalents were invested in a repurchase agreement
with Thermo Electron. Under this agreement, the Company in effect lends
excess cash to Thermo Electron, which Thermo Electron collateralizes with
investments principally consisting of corporate notes, commercial paper,
U.S. government-agency securities, money market funds, and other
marketable securities, in the amount of at least 103% of such obligation.
The Company's funds subject to the repurchase agreement are readily
convertible into cash by the Company. The repurchase agreement earns a
rate based on the 90-day Commercial Paper Composite Rate plus 25 basis
points, set at the beginning of each quarter. At year-end 1997 and 1996,
the Company's cash equivalents also include investments in commercial
paper and short-term certificates of deposit of the Company's foreign
operations which have an original maturity of three months or less. Cash
equivalents are carried at cost, which approximates market value.
9PAGE
<PAGE>
Thermo Cardiosystems Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
Inventories
Inventories are stated at the lower of cost (on a first-in, first-out
basis) or market value and include materials, labor, and manufacturing
overhead. The components of inventories are as follows:
(In thousands) 1997 1996
-----------------------------------------------------------------------
Raw materials $ 3,420 $ 9,111
Work in process 8,381 3,043
Finished goods 2,718 1,716
------- -------
$14,519 $13,870
======= =======
Property, Plant, and Equipment
The costs of additions and improvements are capitalized, while
maintenance and repairs are charged to expense as incurred. The Company
provides for depreciation and amortization using the straight-line method
over the estimated useful lives of the property, as follows: buildings,
15 and 31.5 years; machinery and equipment, three to ten years, and
leasehold improvements, the shorter of the term of the lease or the life
of the asset. Property, plant, and equipment consists of the following:
(In thousands) 1997 1996
-----------------------------------------------------------------------
Land $ 341 $ 341
Buildings 2,445 2,445
Machinery, equipment, and leasehold improvements 15,075 13,048
------- -------
17,861 15,834
Less: Accumulated depreciation and amortization 9,380 7,334
------- -------
$ 8,481 $ 8,500
======= =======
Other Assets
Other assets in the accompanying consolidated balance sheet include
the cost of acquired patents and trademarks and in 1997 deferred debt
expense relating to the Company's issuance of subordinated convertible
debentures. These assets are being amortized using the straight-line
method over their estimated useful lives, which range from 7 to 40 years.
These assets were $2,145,000 and $331,000, net of accumulated
amortization of $358,000 and $130,000, at year-end 1997 and 1996,
respectively.
10PAGE
<PAGE>
Thermo Cardiosystems Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
Stock Split
All share and per share information was restated in 1996 to reflect a
three-for-two stock split effected in the form of a 50% stock dividend,
distributed in May 1996.
Foreign Currency
All assets and liabilities of the Company's foreign subsidiary are
translated at year-end exchange rates, and revenues and expenses are
translated at average exchange rates for the year in accordance with SFAS
No. 52, "Foreign Currency Translation." Resulting translation adjustments
are reflected as a separate component of shareholders' investment titled
"Cumulative translation adjustment." Foreign currency transaction gains
and losses are included in the accompanying statement of income and are
not material for each of the three years presented.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Presentation
The historical information for all periods presented has been
restated to reflect the May 2, 1997, acquisition of International
Technidyne, which has been accounted for at historical cost in a manner
similar to a pooling of interests (Note 3).
2. Available-for-sale Investments
In accordance with SFAS No. 115, "Accounting for Certain Investments
in Debt and Equity Securities," the Company's debt securities are
considered available-for-sale investments in the accompanying balance
sheet and are carried at market value, with the difference between cost
and market value, net of related tax effects, recorded currently as a
component of shareholders' investment titled "Net unrealized gain (loss)
on available-for-sale investments."
11PAGE
<PAGE>
Thermo Cardiosystems Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
2. Available-for-sale Investments (continued)
The aggregate market value, cost basis, and gross unrealized gains
and losses of short- and long-term available-for-sale investments by
major security type are as follows:
Gross Gross
Market Cost Unrealized Unrealized
(In thousands) Value Basis Gains Losses
-----------------------------------------------------------------------
1997
Government-agency
securities $55,391 $55,334 $ 66 $ (9)
Corporate bonds 1,001 1,000 1 -
Other 1,862 1,764 172 (74)
------- ------- ------- -------
$58,254 $58,098 $ 239 $ (83)
======= ======= ======= =======
1996
Government-agency
securities $76,901 $76,917 $ - $ (16)
Corporate bonds 1,014 1,006 8 -
Other 2,460 2,517 - (57)
------- ------- ------- -------
$80,375 $80,440 $ 8 $ (73)
======= ======= ======= =======
Short- and long-term available-for-sale investments in the
accompanying 1997 balance sheet include $45,589,000 with contractual
maturities of one year or less, and $12,665,000 with contractual
maturities of more than one year through five years. Actual maturities
may differ from contractual maturities as a result of the Company's
intent to sell these securities prior to maturity and as a result of put
and call options that enable either the Company, the issuer, or both to
redeem these securities at an earlier date.
The cost of available-for-sale investments that were sold was based
on specific identification in determining realized gains recorded in the
accompanying statement of income. Gain on sale of investments, net,
resulted from gross realized gains of $5,000 in 1997, and gross realized
gains of $1,040,000 and $439,000 and gross realized losses of $121,000
and $18,000 in 1996 and 1995, respectively, relating to the sale of
available-for-sale investments.
3. Acquisitions
On May 2, 1997, the Company acquired International Technidyne from
Thermo Electron in exchange for the right to receive 3,355,705 shares of
the Company's common stock. International Technidyne is a leading
manufacturer of near-patient, whole-blood coagulation testing equipment
and related disposables and also manufactures premium-quality,
single-use skin-incision devices.
12PAGE
<PAGE>
Thermo Cardiosystems Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
3. Acquisitions (continued)
Because the Company and International Technidyne were deemed for
accounting purposes to be under control of their common majority owner,
Thermo Electron, the transaction has been accounted for at historical
cost in a manner similar to a pooling of interests. Accordingly, all
historical financial information presented has been restated to include
the acquisition of International Technidyne. The 3,355,705 shares of the
Company's common stock issuable in connection with the acquisition will
not be issued until the listing of such shares for trading upon the
American Stock Exchange has been approved by the Company's shareholders.
Because Thermedics is the majority shareholder, is controlled by Thermo
Electron, and intends to vote its shares in favor of such listing, the
approval is assured and, therefore, the shares are considered to be
outstanding and the results of International Technidyne are included for
all periods presented.
Revenues and net income, as previously reported by the separate
entities prior to the acquisition and as restated for the combined
Company, are as follows:
(In thousands) 1996 1995
-----------------------------------------------------------------------
Revenues:
Historical $29,970 $20,593
International Technidyne 33,992 32,287
------- -------
$63,962 $52,880
======= =======
Net income:
Historical $ 5,358 $ 6,925
International Technidyne 4,672 4,210
------- -------
$10,030 $11,135
======= =======
In December 1996, the Company acquired substantially all of the
assets, subject to certain liabilities, of Nimbus Medical, Inc., a
research and development organization specializing in ventricular-assist
devices and total artificial hearts, for $5,013,000 in cash. Nimbus is
engaged strictly in research and development activities and, through its
acquisition date, had not completed development of any commercial
products for which it retains ownership rights. Nimbus' assets acquired
by the Company included certain technology in development. The
feasibility of the technology in development had not been conclusively
established at the acquisition date and such technology had no future use
other than in potential future generations of heart-assist devices or in
total artificial hearts. In connection with the acquisition of Nimbus,
the Company wrote off $4,909,000, which represents the portion of the
purchase price allocated to technology in development based on estimated
replacement cost.
13PAGE
<PAGE>
Thermo Cardiosystems Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
3. Acquisitions (continued)
This acquisition has been accounted for using the purchase method of
accounting and its results of operations have been included in the
accompanying financial statements from the date of acquisition. Pro forma
data is not presented since this acquisition was not material to the
Company's results of operations.
4. Employee Benefit Plans
Stock-based Compensation Plans
Stock Option Plans
------------------
The Company has stock-based compensation plans for its key employees,
directors, and others. Two of these plans, adopted in 1988, permit the
grant of nonqualified and incentive stock options. A third plan, adopted
in 1994, permits the grant of a variety of stock and stock-based awards
as determined by the human resources committee of the Company's Board of
Directors (the Board Committee), including restricted stock, stock
options, stock bonus shares, or performance-based shares. To date, only
nonqualified stock options have been awarded under this plan. The option
recipients and the terms of options granted under these plans are
determined by the Board Committee. Generally, options granted to date are
exercisable immediately, but are subject to certain transfer restrictions
and the right of the Company to repurchase shares issued upon exercise of
the options at the exercise price, upon certain events. The restrictions
and repurchase rights generally lapse ratably over a five- to ten-year
period, depending on the term of the option, which may range from seven
to twelve years. Nonqualified options may be granted at any price
determined by the Board Committee, although incentive stock options must
be granted at not less than the fair market value of the Company's stock
on the date of grant. To date, all options have been granted at fair
market value. The Company also has a directors' stock option plan,
adopted in 1991, that provides for the grant of stock options to outside
directors pursuant to a formula approved by the Company's shareholders.
Options awarded under this plan are exercisable six months after the date
of grant and expire three or seven years after the date of grant. In
addition to the Company's stock-based compensation plans, certain
officers and key employees may also participate in the stock-based
compensation plans of Thermedics and Thermo Electron.
14PAGE
<PAGE>
Thermo Cardiosystems Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
4. Employee Benefit Plans (continued)
A summary of the Company's stock option activity is as follows:
1997 1996 1995
---------------- ---------------- ----------------
Weighted Weighted Weighted
Number Average Number Average Number Average
(Shares in of Exercise of Exercise of Exercise
thousands) Shares Price Shares Price Shares Price
-------------------------------------------------------------------------
Options outstanding,
beginning of year 1,130 $14.59 1,137 $ 9.84 1,458 $ 6.05
Granted 783 27.22 189 32.90 121 28.34
Exercised (119) 4.95 (179) 3.67 (429) 2.13
Forfeited (148) 24.42 (17) 15.55 (13) 11.03
----- ----- -----
Options outstanding,
end of year 1,646 $20.41 1,130 $14.59 1,137 $ 9.84
===== ====== ===== ====== ===== ======
Options exercisable 1,646 $20.41 1,130 $14.59 1,137 $ 9.84
===== ====== ===== ====== ===== ======
Options available
for grant 318 453 625
===== ===== =====
A summary of the status of the Company's stock options at January 3,
1998, is as follows:
Options Outstanding and Exercisable
-----------------------------------
Weighted
Number Weighted Average Average
of Remaining Exercise
Range of Exercise Prices Shares Contractual Life Price
-----------------------------------------------------------------------
(Shares in thousands)
$ 1.15 - $13.10 651 4.9 years $ 8.86
13.11 - 25.06 112 8.4 years 23.35
25.07 - 37.01 842 8.6 years 27.82
37.02 - 48.97 41 4.4 years 43.56
-----
$ 1.15 - $48.97 1,646 7.0 years $20.41
=====
15PAGE
<PAGE>
Thermo Cardiosystems Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
4. Employee Benefit Plans (continued)
Employee Stock Purchase Program
-------------------------------
Substantially all of the Company's full-time employees are eligible
to participate in an employee stock purchase program sponsored by the
Company and Thermo Electron. Under this program, shares of the Company's
and Thermo Electron's common stock can be purchased at the end of a
12-month period at 95% of the fair market value at the beginning of the
period, and the shares purchased are subject to a six-month resale
restriction. Prior to November 1, 1995, the applicable shares of common
stock could be purchased at 85% of the fair market value at the beginning
of the period, and the shares purchased were subject to a one-year resale
restriction. Shares are purchased through payroll deductions of up to 10%
of each participating employee's gross wages. During 1997, 1996, and
1995, the Company issued 435 shares, 3,469 shares, and 7,881 shares,
respectively, of its common stock under this program.
Pro Forma Stock-based Compensation Expense
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock-based Compensation," which sets forth a
fair-value based method of recognizing stock-based compensation expense.
As permitted by SFAS No. 123, the Company has elected to continue to
apply APB No. 25 to account for its stock-based compensation plans. Had
compensation cost for awards in 1997, 1996, and 1995 under the Company's
stock-based compensation plans been determined based on the fair value at
the grant dates consistent with the method set forth under SFAS No. 123,
the effect on the Company's net income and earnings per share would have
been as follows:
(In thousands except per share amounts) 1997 1996 1995
-----------------------------------------------------------------------
Net income:
As reported $ 9,019 $10,030 $11,135
Pro forma 7,658 9,495 11,005
Basic earnings per share:
As reported .23 .25 .29
Pro forma .19 .24 .29
Diluted earnings per share:
As reported .23 .25 .27
Pro forma .19 .23 .27
Because the method prescribed by SFAS No. 123 has not been applied to
options granted prior to January 1, 1995, the resulting pro forma
compensation expense may not be representative of the amount to be
expected in future years. Compensation expense for options granted is
reflected over the vesting period; therefore, future pro forma
compensation expense may be greater as additional options are granted.
16PAGE
<PAGE>
Thermo Cardiosystems Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
4. Employee Benefit Plans (continued)
The weighted average fair value per share of options granted was
$15.92, $18.23, and $14.02 in 1997, 1996, and 1995, respectively. The
fair value of each option grant was estimated on the grant date using the
Black-Scholes option-pricing model with the following weighted-average
assumptions:
1997 1996 1995
-----------------------------------------------------------------------
Volatility 51% 50% 50%
Risk-free interest rate 6.4% 6.2% 6.0%
Expected life of options 6.6 years 6.6 years 4.7 years
The Black-Scholes option-pricing model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option-pricing
models require the input of highly subjective assumptions including
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of
the fair value of its employee stock options.
401(k) Savings Plan
Substantially all of the Company's full-time employees are eligible
to participate in Thermo Electron's 401(k) savings plan. Contributions to
the plan are made by both the employee and the Company. Company
contributions are based upon the level of employee contributions. For
this plan, the Company contributed and charged to expense $410,000,
$459,000, and $413,000 in 1997, 1996, and 1995, respectively.
5. Income Taxes
The components of income before provision for income taxes are as
follows:
(In thousands) 1997 1996 1995
-----------------------------------------------------------------------
Domestic $14,808 $16,081 $16,414
Foreign (110) 275 -
------- ------- -------
$14,698 $16,356 $16,414
======= ======= =======
17PAGE
<PAGE>
Thermo Cardiosystems Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
5. Income Taxes (continued)
The components of the provision for income taxes are as follows:
(In thousands) 1997 1996 1995
-----------------------------------------------------------------------
Currently payable:
Federal $ 4,838 $ 7,440 $ 6,333
State 1,011 724 721
------- ------- -------
5,849 8,164 7,054
------- ------- -------
Net deferred (prepaid):
Federal (136) (2,115) (1,697)
State (34) 277 (78)
------- ------- -------
(170) (1,838) (1,775)
------- ------- -------
$ 5,679 $ 6,326 $ 5,279
======= ======= =======
The Company receives a tax deduction upon exercise of nonqualified
stock options by employees for the difference between the exercise price
and the market price of the Company's common stock on the date of
exercise. The provision for income taxes that is currently payable does
not reflect $1,078,000, $2,190,000, and $3,335,000 of such benefits that
have been allocated to capital in excess of par value in 1997, 1996, and
1995, respectively.
The provision for income taxes in the accompanying statement of
income differs from the provision calculated by applying the statutory
federal income tax rate of 35% in 1997 and 34% in 1996 and 1995 to income
before provision for income taxes due to the following:
(In thousands) 1997 1996 1995
-----------------------------------------------------------------------
Provision for income taxes at statutory
rate $ 5,144 $ 5,561 $ 5,581
Increases (decreases) resulting from:
State income taxes, net of federal tax 635 660 424
Foreign sales corporation benefit (160) (111) (103)
Reversal of valuation allowance - - (725)
Other 60 216 102
------- ------- -------
$ 5,679 $ 6,326 $ 5,279
======= ======= =======
The Company's valuation allowance was reversed in 1995 as a result of
reduced uncertainty surrounding the realization of future tax benefits.
The portion of the reduction in the valuation allowance that related to
stock options was recorded as an increase to capital in excess of par
value.
18PAGE
<PAGE>
Thermo Cardiosystems Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
5. Income Taxes (continued)
Short- and long-term prepaid income taxes in the accompanying balance
sheet consist of the following:
(In thousands) 1997 1996
----------------------------------------------------------------------
Prepaid income taxes:
Inventory basis difference $1,334 $1,314
State tax loss and credit carryforwards 612 434
Available-for-sale investments (56) 23
Depreciation and amortization 971 958
Accrued compensation 580 277
Allowance for doubtful accounts 211 189
Reserves and accruals 1,097 1,136
Write-off of acquired technology (Note 3) 1,834 1,865
Other, net 128 381
------ ------
$6,711 $6,577
====== ======
The Company has available $6,300,000 of state net operating loss
carryforwards which expire from 1998 through 2002 and $100,000 of state
tax credit carryforwards which expire from 2000 through 2012.
6. Subordinated Convertible Debentures
In May 1997, the Company issued and sold at par $70,000,000 principal
amount of 4 3/4% subordinated convertible debentures due 2004, for net
proceeds of $68,028,000. The debentures are convertible into shares of
the Company's common stock at a conversion price of $31.415 per share.
In January 1994, the Company issued and sold at par value $33,000,000
principal amount of noninterest-bearing subordinated convertible
debentures due January 1997. During 1997, 1996, and 1995, $3,755,000,
$7,887,000, and $21,358,000, respectively, of principal amount of these
subordinated convertible debentures and, in 1995, $450,000 principal
amount of the Company's 5 1/2% subordinated convertible notes were
converted into 259,078 shares, 544,168 shares, and 1,541,976 shares,
respectively, of the Company's common stock.
The Company's convertible debentures are guaranteed on a subordinated
basis by Thermo Electron. Thermedics has agreed to reimburse Thermo
Electron in the event Thermo Electron is required to make a payment under
the guarantee.
See Note 10 for the fair value information pertaining to the
Company's subordinated convertible debentures.
7. Related-party Transactions
Corporate Services Agreement
The Company and Thermo Electron have a corporate services agreement
under which Thermo Electron's corporate staff provides certain
administrative services, including certain legal advice and services,
risk management, certain employee benefit administration, tax advice and
preparation of tax returns, centralized cash management, and certain
financial and other services, for which the Company paid Thermo Electron
annually an amount equal to 1.0% of the Company's revenues in 1997 and
19PAGE
<PAGE>
Thermo Cardiosystems Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
7. Related-party Transactions (continued)
1996 and 1.20% of the Company's revenues in 1995. Beginning in fiscal
1998, the Company will pay an annual fee equal to 0.8% of the Company's
revenues. The annual fee is reviewed and adjusted annually by mutual
agreement of the parties. In addition, the Company uses data processing
services of a majority-owned subsidiary of Thermo Electron, and
accounting, personnel, and administrative services of Thermedics. For
these services, as well as the administrative services provided by Thermo
Electron, the Company was charged $963,000, $958,000, and $865,000 in
1997, 1996, and 1995, respectively. The corporate services agreement is
renewed annually but can be terminated upon 30 days' prior notice by the
Company or upon the Company's withdrawal from the Thermo Electron
Corporate Charter (the Thermo Electron Corporate Charter defines the
relationship among Thermo Electron and its majority-owned subsidiaries).
Management believes that the service fees charged by Thermo Electron, its
majority-owned subsidiary, and Thermedics are reasonable and that such
fees are representative of the expenses the Company would have incurred
on a stand-alone basis. For additional items such as employee benefit
plans, insurance coverage, and other identifiable costs, Thermo Electron
charges the Company based upon costs attributable to the Company.
Operating Leases
The Company subleases office and research facilities from Thermedics
and is charged for actual square footage occupied at approximately the
same rent paid per square foot by Thermedics under its prime lease. The
sublease expires in February 1999. The accompanying statement of income
includes expenses from the sublease of $170,000, $116,000, and $134,000
in 1997, 1996, and 1995, respectively. Currently, the cost of the area
occupied by the Company is $170,000 per year.
In 1997, the Company subleased approximately 8,000 square feet of
office and research facilities from Thermedics Detection Inc., a publicly
traded majority-owned subsidiary of Thermedics, under a two-year sublease
agreement. Under this sublease, the Company will pay Thermedics Detection
base rent of $40,000 in the first year and $44,000 in the second year, as
well as approximately $33,000 per year, representing the Company's pro
rata allocation of the facility's aggregate operating costs, real estate
taxes, and utilities. The accompanying statement of income includes
expenses from this sublease agreement of $73,000 in 1997.
The Company leases office space on a month-to-month basis from an
affiliate which is controlled by Thermo Electron. The accompanying
statement of income includes expenses from this lease of $9,000, $8,000,
and $17,000 in 1997, 1996, and 1995, respectively.
Repurchase Agreement
The Company invests excess cash in a repurchase agreement with Thermo
Electron as discussed in Note 1.
20PAGE
<PAGE>
Thermo Cardiosystems Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
8. Commitment and Contingency
Operating Lease
In addition to the related-party operating leases described in Note
7, the Company leases manufacturing, office, and research facilities
under two operating lease agreements expiring in 1999 and 2000. The
accompanying statement of income includes expense from these leases of
$551,000, $188,000, and $13,000 in 1997, 1996, and 1995, respectively.
Future minimum payments due under these leases at January 3, 1998, are
$331,000 in 1998; $236,000 in 1999; $124,000 in 2000; $116,000 in 2001;
and $117,000 in 2002. Total future minimum lease payments are $924,000.
Contingency
The Company has received correspondence alleging that the textured
surface of the LVAS housing infringes the intellectual property rights of
another party. In general, an owner of intellectual property can prevent
others from using such property without a license and is entitled to
damages for unauthorized past usage. The Company has investigated the
bases of the allegation and, based on the opinion of its counsel,
believes that if the Company were sued on these bases, it would have
meritorious defenses.
9. Stock Purchase Warrant and Common Stock
In May 1993, in connection with an agreement to develop a material to
be used in the Company's LVAS, the Company granted to a third party the
right to purchase from the Company 60,000 shares of the Company's common
stock at a price of $5.83 per share, which was the fair market value of
the Company's common stock on the date of grant. This warrant is
exercisable immediately and expires ten years after the date of grant.
At January 3, 1998, the Company had reserved 4,511,098 unissued
shares of its common stock for possible issuance under stock-based
compensation plans, possible conversion of its outstanding subordinated
convertible obligations, and possible issuance under the stock purchase
warrant.
10. Fair Value of Financial Instruments
The Company's financial instruments consist mainly of cash and cash
equivalents, available-for-sale investments, accounts receivable,
accounts payable, due to parent company and Thermo Electron Corporation,
and subordinated convertible debentures. The carrying amounts of these
financial instruments, with the exception of subordinated convertible
obligations, approximates fair value due to their short-term nature.
Available-for-sale investments are carried at fair value in the
accompanying balance sheet. The fair values were determined based on
quoted market prices. See Note 2 for fair value information pertaining to
these financial instruments.
21PAGE
<PAGE>
Thermo Cardiosystems Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
10. Fair Value of Financial Instruments (continued)
The fair value of the Company's subordinated convertible debentures
was determined based on quoted market prices. The carrying amount and
fair value of the Company's subordinated convertible debentures were
$70,000,000 and $74,900,000 in 1997, respectively, and $3,755,000 and
$7,435,000 in 1996, respectively.
11. Significant Customer, Export Sales, and Concentrations of Risk
Significant Customer
Sales to one customer accounted for 24%, 23%, and 25% of the
Company's total revenues in 1997, 1996, and 1995, respectively.
Export Sales
Export revenues to European countries accounted for 9%, 10%, and 11%
of the Company's total revenues in 1997, 1996, and 1995, respectively.
Export revenues to other countries accounted for 7%, 8%, and 7% of the
Company's total revenues in 1997, 1996, and 1995, respectively.
Concentrations of Risk
Certain raw materials used in the manufacture of the Company's LVAS
are available from only one or two suppliers. The Company is making
efforts to minimize the risks associated with sole sources and ensure
long-term availability, including qualifying alternative materials and
components or developing alternative sources for materials or components
supplied by a single source. Although the Company believes that it has
adequate supplies of materials and components to meet demand for the LVAS
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 the LVAS.
The Company sells its products to customers in the healthcare
industry. The Company does not normally require collateral or other
security to support its accounts receivable. Management does not believe
that this concentration of credit risk has, or will have, a significant
negative impact on the Company.
22PAGE
<PAGE>
Thermo Cardiosystems Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
12. Earnings per Share
(In thousands except per share amounts) 1997 1996 1995
-----------------------------------------------------------------------
Basic
Net income $ 9,019 $10,030 $11,135
------- ------- -------
Weighted average shares 36,126 36,568 35,002
Shares issuable in connection with the
acquisition of International
Technidyne (Note 3) 3,356 3,356 3,356
------- ------- -------
39,482 39,924 38,358
------- ------- -------
Basic earnings per share $ .23 $ .25 $ .29
======= ======= =======
Diluted
Net income $ 9,019 $10,030 $11,135
Effect of convertible debentures - - 5
------- ------- -------
Income available to common
shareholders, as adjusted $ 9,019 $10,030 $11,140
------- ------- -------
Basic weighted average shares 39,482 39,924 38,358
Effect of:
Convertible debentures 2 559 1,778
Stock options 281 446 514
------- ------- -------
Weighted average shares, as adjusted 39,765 40,929 40,650
------- ------- -------
Diluted earnings per share $ .23 $ .25 $ .27
======= ======= =======
The computation of diluted earnings per share excludes the effect of
assuming the exercise of certain outstanding stock options because the
effect would be antidilutive. At January 3, 1998, there were 883,100 of
such options outstanding, with exercise prices ranging from $26.48 to
$48.97 per share.
In addition, the computation of diluted earnings per share for 1997
excludes the effect of assuming the conversion of $70,000,000 principal
amount of 4 3/4% subordinated convertible debentures, convertible at
$31.415 per share, because the effect would be antidilutive.
23PAGE
<PAGE>
Thermo Cardiosystems Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
13. Unaudited Quarterly Information
(In thousands except per share amounts)
1997 First Second Third Fourth
----------------------------------------------------------------------
Revenues $14,902 $15,931 $14,727 $17,274
Gross profit 7,973 8,703 8,674 10,341
Net income 1,875 2,222 2,228 2,694
Basic and diluted
earnings per share .05 .06 .06 .07
1996 First Second Third Fourth(a)
-------------------------------------------------------------------------
Revenues $15,405 $15,893 $16,084 $16,580
Gross profit 8,896 9,501 9,787 8,646
Net income (loss) 3,431 3,573 3,962 (936)
Earnings (loss) per
share:
Basic .09 .09 .10 (.02)
Diluted .08 .09 .10 (.02)
____________
(a) Includes a write-off of $4,909,000 of acquired technology.
24PAGE
<PAGE>
Thermo Cardiosystems Inc. 1997 Financial Statements
Report of Independent Public Accountants
To the Shareholders and Board of Directors of Thermo Cardiosystems Inc.:
We have audited the accompanying consolidated balance sheet of Thermo
Cardiosystems Inc. (a Massachusetts corporation and 51%-owned subsidiary
of Thermedics Inc.) and subsidiaries as of January 3, 1998, and December
28, 1996, and the related consolidated statements of income,
shareholders' investment, and cash flows for each of the three years in
the period ended January 3, 1998. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is
to express an opinion on these consolidated financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Thermo Cardiosystems Inc. and subsidiaries as of January 3, 1998, and
December 28, 1996, and the results of their operations and their cash
flows for each of the three years in the period ended January 3, 1998, in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
February 12, 1998
25PAGE
<PAGE>
Thermo Cardiosystems Inc. 1997 Financial Statements
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.
For this purpose, any statements contained herein that are not statements
of historical fact may be deemed to be forward-looking statements.
Without limiting the foregoing, the words "believes," "anticipates,"
"plans," "expects," "seeks," "estimates," and similar expressions are
intended to identify forward-looking statements. There are a number of
important factors that could cause the results of the Company to differ
materially from those indicated by such forward-looking statements,
including those detailed immediately after this Management's Discussion
and Analysis of Financial Condition and Results of Operation under the
heading "Forward-looking Statements."
Overview
The Company is a leader in the research, development, and manufacture
of implantable left ventricular-assist systems (LVAS). Its HeartMate(R)
devices are 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.
In general, a profit cannot be earned from the sale of an LVAS in the
United States until approval of the device has been received from the
U.S. Food and Drug Administration (FDA) for commercial sale. 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 1994.
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 other than the initial sale of the
implementation program. In general, the Company receives greater revenues
from the sale of an implementation program than from a subsequent
implant.
In December 1996, the Company acquired substantially all of the
assets, subject to certain liabilities, of Nimbus Medical, Inc., a
research and development organization. Nimbus has been involved in
artificial heart technology for more than 20 years and has carried out
research in two primary fields: ventricular-assist devices and total
artificial hearts. Nimbus was instrumental in developing the basic
technology for high-speed rotary blood pumps. Because of their smaller
size, rotary blood pumps may potentially be used to provide cardiac
support in small adults and in children.
The Company's International Technidyne Corporation subsidiary is a
leading manufacturer of near-patient, whole-blood coagulation testing
equipment and related disposables and also manufactures premium-quality,
single-use skin-incision devices.
26PAGE
<PAGE>
Thermo Cardiosystems Inc. 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
1997 Compared With 1996
Revenues were $62,834,000 in 1997, compared with $63,962,000 in 1996.
This decrease was primarily due to a $6,612,000 decrease in revenues from
the Company's air-driven LVAS, offset in part by a $1,943,000 increase in
revenues from the Company's electric LVAS. The Company expects that
revenues from sales of its LVAS will stabilize at approximately current
levels until the electric system is approved in the U.S. for commercial
sale. The Company believes that this approval could occur within the
first six months of 1998, however, there can be no assurance that the
Company will receive this approval within the expected time period, or at
all. The decrease in revenues in 1997 was also offset in part by the
inclusion of $1,992,000 in revenues from Nimbus, acquired in December
1996, as well as an increase in revenues from International Technidyne to
$35,873,000 in 1997 from $33,992,000 in 1996. International Technidyne's
revenues increased primarily due to increased demand.
The gross profit margin decreased to 57% in 1997 from 58% in 1996,
primarily due to a shift in the sales mix to the lower-margin electric
LVAS and, to a lesser extent, increased warranty costs due to a
Company-initiated modification of certain of its LVAS, completed in the
first quarter of 1997. The Company will continue to be unable to earn a
profit on sales of the electric LVAS in the U.S. until FDA approval of
that system is obtained. This decrease was offset, in part, by improved
margins at International Technidyne, primarily due to manufacturing
efficiencies. The Company announced an overall price increase of
approximately 10% in the electric LVAS product line, effective June 28,
1997, to help offset increased production costs.
Selling, general, and administrative expenses as a percentage of
revenues increased to 26% in 1997 from 22% in 1996, primarily due to
higher marketing expenses as a result of an increase in the Company's
LVAS sales force and, to a lesser extent, an increase in promotional
expenses at International Technidyne.
Research and development expenses increased to $8,682,000 in 1997
from $7,498,000 in 1996, primarily due to a clinical trial being
conducted by the Company to evaluate the electric LVAS as an alternative
to medical therapy and, to a lesser extent, the inclusion of expenditures
at Nimbus, acquired in December 1996. The Company expects research and
development expenses to continue to increase over the life of the
clinical trial, estimated at two to three years. There can be no
assurance that the Company will complete this study or that it will
receive FDA approval of the electric LVAS as an alternative to medical
therapy during this time period, or at all.
In connection with the December 1996 acquisition of the Nimbus
business, the Company wrote off $4,909,000 in 1996, which represents the
portion of the purchase price allocated to technology in development
based on estimated replacement cost (Note 3).
Interest income increased to $6,476,000 in 1997 from $5,297,000 in
1996, primarily as a result of higher average invested balances resulting
from the sale of $70,000,000 principal amount of 4 3/4% subordinated
convertible debentures in May 1997 (Note 6).
27PAGE
<PAGE>
Thermo Cardiosystems Inc. 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
1997 Compared With 1996 (continued)
Interest expense increased to $2,244,000 in 1997 from $80,000 in
1996, primarily as a result of the issuance of the 4 3/4% subordinated
convertible debentures.
The Company recorded a gain on sale of investments, net, of $5,000 in
1997, compared with $919,000 in 1996 (Note 2).
The effective tax rates were 39% in both 1997 and 1996. The effective
tax rates exceeded the statutory federal income tax rate primarily due to
the impact of state income taxes.
The Company is currently assessing the potential impact of the year
2000 on the processing of date-sensitive information by the Company's
computerized information systems and on products sold as well as products
purchased by the Company. The Company believes that its internal
information systems and current products are either year 2000 compliant
or will be so prior to the year 2000 without incurring additional costs.
There can be no assurance, however, that the Company will not experience
unexpected costs and delays in achieving year 2000 compliance for its
internal information systems and current products, which could result in
a material adverse effect on the Company's future results of operations.
The Company is presently assessing the effect that the year 2000
problem may have on its previously sold products. The Company is also
assessing whether its key suppliers are adequately addressing this issue
and the effect this might have on the Company. The Company has not
completed its analysis and is unable to conclude at this time that the
year 2000 problem as it relates to its previously sold products and
products purchased from key suppliers is not reasonably likely to have a
material adverse effect on the company's future results of operations.
1996 Compared With 1995
Revenues in 1996 increased 21% to $63,962,000 from $52,880,000 in
1995, primarily due to a $9,377,000 increase in LVAS sales and, to a
lesser extent, a $1,705,000 increase in sales of International Technidyne
products, primarily due to an increase in demand.
The gross profit margin remained constant at 58% in 1996 and 1995.
The LVAS product gross profit margin increased to 60% in 1996 from 57% in
1995, primarily due to an increase in revenues from higher-margin
implementation programs, an increase in sales volume and, to a lesser
extent, manufacturing efficiencies. These increases were offset in part
by costs associated with modifications made to the Company's LVAS. In
addition, the gross profit margin at International Technidyne decreased
slightly to 57% in 1996 from 58% in 1995, due primarily to increased
costs associated with a new facility.
Selling, general, and administrative expenses as a percentage of
revenues decreased slightly to 22% in 1996 from 23% in 1995. LVAS-related
expenses as a percentage of revenues remained constant at 20% in 1996 and
1995. Higher marketing expenses due to an increase in the Company's LVAS
sales force were offset by lower expenses as a percentage of revenues due
to an increase in LVAS sales volume. Selling, general, and administrative
expenses as a percentage of revenues declined slightly at International
Technidyne to 24% in 1996 from 25% in 1995 due to an increase in
revenues.
28PAGE
<PAGE>
Thermo Cardiosystems Inc. 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
1996 Compared With 1995 (continued)
Research and development expenses of $7,498,000 in 1996 and
$7,111,000 in 1995 reflect the Company's continued commitment to product
development.
In connection with the December 1996 acquisition of the Nimbus
business, the Company wrote off $4,909,000, which represents the portion
of the purchase price allocated to technology in development based on
estimated replacement cost.
Interest income increased to $5,297,000 in 1996 from $5,117,000 in
1995, primarily as a result of higher invested balances. Interest expense
decreased to $80,000 in 1996 from $274,000 in 1995, primarily as a result
of lower amortization of deferred issuance costs associated with the
Company's noninterest-bearing subordinated convertible debentures due to
the conversion of $7,887,000 principal amount of these debentures in
1996.
The Company recorded a gain on sale of investments, net, of $919,000
in 1996, compared with $421,000 in 1995 (Note 2).
The effective tax rates were 39% and 32% in 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 reversal of a tax valuation allowance that was
no longer required.
Liquidity and Capital Resources
Working capital was $136,702,000 at January 3, 1998, compared with
$65,328,000 at December 28, 1996. Cash, cash equivalents, and short- and
long-term available-for-sale investments were $129,412,000 at January 3,
1998, compared with $81,532,000 at December 28, 1996. During 1997,
$14,023,000 of cash was provided by operating activities. Cash of
$1,987,000 was provided by a decrease in accounts receivable, due to
improved collections. In addition, cash of $1,186,000 was provided by an
increase in current liabilities, primarily accrued income taxes.
During 1997, the Company's primary investing activity, excluding
available-for-sale investments activity, was the expenditure of
$2,333,000 for purchases of property, plant, and equipment.
During 1997, the Company's financing activities provided $35,885,000
of cash. In May 1997, the Company issued and sold at par $70,000,000
principal amount of 4 3/4% subordinated convertible debentures due 2004,
for net proceeds of $68,028,000 (Note 6). Through a series of actions
commencing in August 1996, the Company's Board of Directors has
authorized the repurchase, through various dates ending in June 1998, of
up to $50.0 million of its own securities in the open market, or in
negotiated transactions. Any repurchases under the Company's
authorizations are funded from working capital. Through January 3, 1998,
the Company had expended $38,622,000 under these authorizations of which
$32,957,000 was funded in 1997.
In 1998, the Company expects to make capital expenditures of
approximately $4,000,000, including expenditures for manufacturing and
tooling equipment and leasehold improvements. The Company believes it has
adequate resources to meet its financial needs for the foreseeable
future.
29PAGE
<PAGE>
Thermo Cardiosystems Inc. 1997 Financial Statements
Forward-looking Statements
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 1998 and beyond to differ
materially from those expressed in any forward-looking statements made
by, or on behalf of, the Company.
Uncertainty of Regulatory Approval for Biomedical Devices. The
Company's biomedical devices, including its left ventricular-assist
systems (LVAS), are subject to approval by the U.S. Food and Drug
Administration (FDA) before commercial sale of such devices may commence
in the U.S. 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 and other regulatory approvals have been
obtained, such approvals can be suspended or revoked if the Company's
products do not continue to satisfy regulatory requirements. 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's HeartPak(TM) portable console 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 medical therapy. The electric LVAS received the CE Mark in
August 1995.
In June 1997, the Company submitted a premarket approval (PMA)
supplemental application to receive FDA approval of its electric LVAS for
use as a bridge to transplant. This application is currently under
review; however, no assurance can be given that the FDA will review this
application on a timely basis or will grant approval once its review is
complete. Significant 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 medical therapy, 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 likely require patients supported by the
pneumatic LVAS to remain hospitalized. This could materially restrict the
market for the pneumatic LVAS.
Uncertainty of Patient Reimbursement. The cost of implanting a
cardiac support system is substantial. In addition, the Company's
coagulation testing equipment can cost several thousand dollars per
instrument. Without the financial support of the government or
third-party insurers, the market for the Company's devices and equipment
30PAGE
<PAGE>
Thermo Cardiosystems Inc. 1997 Financial Statements
Forward-looking Statements
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 healthcare costs. In addition,
the federal government is considering, and certain state governments are
considering or have adopted, new healthcare policies intended to curb
rising costs. Such policies include rationing of government-funded
reimbursement for healthcare 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 have
already agreed to offer coverage for the pneumatic LVAS. HCFA's coverage
policy could also extend to the electric LVAS once approved; however,
there can be no assurance that HCFA's coverage will extend to the
electric LVAS. In addition, some major nongovernment insurers currently
offer coverage for the electric LVAS because of its investigational
device exemption status as a category B device (eligible for Medicare
coverage and payment). Even though reimbursement has been established by
HCFA and by certain nongovernment insurers for the pneumatic LVAS, 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 or for the Company's biomedical devices
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. In addition,
acceptance by these physicians of the Company's whole-blood coagulation
monitoring systems and Coumadin monitors is also important to the success
of the Company's business. The Company has developed working
relationships with a number of leading medical centers, and its existing
and proposed LVAS and its blood coagulation monitoring systems 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
31PAGE
<PAGE>
Thermo Cardiosystems Inc. 1997 Financial Statements
Forward-looking Statements
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 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.
Further, the Company has several competitors in the coagulation
monitoring instrument market. Although the length of the regulatory
approval process for medical equipment and devices such as LVAS is a
barrier to entry into these markets, the Company's products could be
rendered obsolete or uneconomical by technological advances by one or
more of the Company's present competitors or by future entrants into the
markets in which the Company competes. 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. The Company is making efforts to
minimize the risks associated with sole sources and ensure long-term
availability, including qualifying alternative materials and components
or developing alternative sources for materials and components supplied
by a single source. Although 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 with respect to its LVAS and its reagents, however,
with respect to its coagulation equipment and skin-incision products, the
Company relies principally on patents to protect its proprietary rights.
No assurance can be given that the Company will be able to effectively
protect its patents and 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
32PAGE
<PAGE>
Thermo Cardiosystems Inc. 1997 Financial Statements
Forward-looking Statements
affected if the Company is unable to protect adequately its proprietary
rights. In addition, there can be no assurance that third parties will
not assert claims against the Company that the Company infringes the
intellectual property rights of such parties. The Company could incur
substantial costs and diversion of management resources with respect to
the defense of any such claims, which could have a material adverse
effect on the Company's business, financial condition, and results of
operations. Furthermore, parties making such claims could secure a
judgment awarding substantial damages, as well as injunctive or other
equitable relief, which could effectively block the Company's ability to
make, use, sell, distribute or market its products and services in the
U.S. or abroad. In the event that a claim relating to intellectual
property is asserted against the Company, the Company may seek licenses
to such intellectual property. There can be no assurance, however, that
such licenses could be obtained on commercially reasonable terms, if at
all. The failure to obtain the necessary licenses or other rights could
preclude the sale, manufacture, or distribution of the Company's products
and, therefore, could have a material adverse effect on the Company's
business, financial condition, and results of operations. The Company has
received correspondence from a third party alleging that the textured
surface of the LVAS infringes certain patent rights of such third party.
The Company believes that it has meritorious 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's LVAS business was
engaged only in research and development. Since that time, the Company
has been building its manufacturing, marketing, and sales capabilities.
Although the Company has not experienced difficulties in manufacturing
its LVAS at volume, 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 and/or components are approved for commercial
sale. The Company does not have experience in the large-scale
commercialization of LVAS medical devices. Although 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 LVAS 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.
International Operations and International Sales. In 1997, sales
originating outside the U.S. and U.S. export sales accounted for
approximately 19% of the Company's total revenues. The Company
33PAGE
<PAGE>
Thermo Cardiosystems Inc. 1997 Financial Statements
Forward-looking Statements
anticipates that sales outside the U.S. and U.S. export sales will
continue to account for a significant percentage of the Company's total
revenues. The Company intends to continue to expand its presence in
international markets. International revenues are subject to a number of
risks, including the following: agreements may be difficult to enforce
and receivables difficult to collect through a foreign country's legal
system; foreign customers may have longer payment cycles; foreign
countries may impose additional withholding taxes or otherwise tax the
Company's foreign income, impose tariffs or adopt other restrictions on
foreign trade; U.S. export licenses may be difficult to obtain; the
protection of intellectual property in foreign countries may be more
difficult to enforce; and fluctuations in exchange rates may affect
product demand and may adversely affect the profitability in U.S. dollars
of products and services provided by the Company in foreign markets where
payment for the Company's products and services is made in the local
currency. There can be no assurance that any of these factors will not
have a material effect on the Company's business and results of
operations.
Potential Impact of Year 2000 on Processing of Date-Sensitive
Information. The Company is currently assessing the potential impact of
the year 2000 on the processing of date-sensitive information by the
Company's computerized information systems and on products sold as well
as products purchased by the Company. The Company believes that its
internal information systems and current products are either year 2000
compliant or will be so prior to the year 2000 without incurring
additional costs. There can be no assurance, however, that the Company
will not experience unexpected costs and delays in achieving year 2000
compliance for its internal information systems and current products,
which could result in a material adverse effect on the Company's future
results of operations.
The Company is presently assessing the effect that the year 2000
problem may have on its previously sold products. The Company is also
assessing whether its key suppliers are adequately addressing this issue
and the effect this might have on the Company. The Company has not
completed its analysis and is unable to conclude at this time that the
year 2000 problem as it relates to its previously sold products and
products purchased from key suppliers is not reasonably likely to have a
material adverse effect on the Company's future results of operations.
34PAGE
<PAGE>
Thermo Cardiosystems Inc. 1997 Financial Statements
Selected Financial Information
(In thousands except
per share amounts) 1997(a) 1996(b) 1995(c) 1994(d) 1993
-----------------------------------------------------------------------
Statement of
Income Data:
Revenues $ 62,834 $ 63,962 $ 52,880 $ 39,051 $ 27,849
Net income 9,019 10,030 11,135 5,687 2,336
Earnings per share:
Basic .23 .25 .29 .15 .06
Diluted .23 .25 .27 .14 .06
Balance Sheet
Data:
Working capital $136,702 $ 65,328 $ 64,610 $ 47,369 $ 19,048
Total assets 173,208 124,978 124,285 109,988 74,225
Long-term
obligations 70,000 - 11,642 33,450 600
Shareholders'
investment 92,963 111,089 103,416 68,382 67,514
____________
(a) Reflects the May 1997 issuance of $70,000,000 principal amount of
4 3/4% subordinated convertible debentures due 2004 and conversion
of $3,755,000 principal amount of noninterest-bearing subordinated
convertible obligations.
(b) Reflects conversion of $7,887,000 principal amount of
noninterest-bearing subordinated convertible obligations and the
December 1996 acquisition of Nimbus Medical, Inc.
(c) Reflects conversion of $21,358,000 principal amount of noninterest-
bearing subordinated convertible obligations.
(d) Reflects the January 1994 issuance of $33,000,000 principal amount
of noninterest-bearing subordinated convertible obligations due
1997.
35PAGE
<PAGE>
Thermo Cardiosystems Inc. 1997 Financial Statements
Common Stock Market Information
The Company's common stock is traded on the American Stock Exchange
under the symbol TCA. The following table sets forth the high and low
sale prices of the Company's common stock for 1997 and 1996, as reported
in the consolidated transaction reporting system.
1997 1996
------------------- -------------------
Quarter High Low High Low
---------------------------------------------------------------------
First $32 $20 1/2 $55 1/3 $39 1/3
Second 28 7/8 19 55 3/8 39 7/12
Third 27 1/4 19 1/8 44 5/8 29 1/2
Fourth 28 7/8 19 38 1/4 23 3/8
As of January 30, 1998, the Company had 469 holders of record of its
common stock. This does not include holdings in street or nominee names.
The closing market price on the American Stock Exchange for the Company's
common stock on January 30, 1998, was $21 7/8 per share.
Shareholder Services
Shareholders of Thermo Cardiosystems Inc. who desire information
about the Company are invited to contact John N. Hatsopoulos, Chief
Financial Officer, Thermo Cardiosystems Inc., 81 Wyman Street, P.O. Box
9046, Waltham, Massachusetts 02254-9046, (781) 622-1111. A mailing list
is maintained to enable shareholders whose stock is held in street name,
and other interested individuals, to receive quarterly reports, annual
reports, and press releases as quickly as possible. Distribution of
printed quarterly reports is limited to the second quarter only. All
material will be available from Thermo Electron's Internet site
(http://www.thermo.com/subsid/tca1.html).
Stock Transfer Agent
American Stock Transfer & Trust Company is the stock transfer agent
and maintains shareholder activity records. The agent will respond to
questions on issuance of stock certificates, change of ownership, lost
stock certificates, and change of address. For these and similar matters,
please direct inquiries to:
American Stock Transfer & Trust Company
Shareholder Services Department
40 Wall Street, 46th Floor
New York, New York 10005
(718) 921-8200
Dividend Policy
Except for a $.01 per share dividend distributed to partially offset
income tax liability relating to the Company's recapitalization in 1990,
the Company has never paid any cash dividends because its policy is to
use earnings to finance expansion and growth. The Company's Board of
Directors anticipates that for the foreseeable future no cash dividends
will be paid on the Company's common stock.
36PAGE
<PAGE>
Thermo Cardiosystems Inc. 1997 Financial Statements
Form 10-K Report
A copy of the Annual Report on Form 10-K for the fiscal year ended
January 3, 1998, as filed with the Securities and Exchange Commission,
may be obtained without charge by writing to John N. Hatsopoulos, Chief
Financial Officer, Thermo Cardiosystems Inc., 81 Wyman Street, P.O. Box
9046, Waltham, Massachusetts 02254-9046.
Annual Meeting
The annual meeting of shareholders will be held on Monday, June 1,
1998, at 1:30 p.m., at the Hyatt Regency Hotel, Scottsdale, Arizona.
37
Exhibit 21
THERMO CARDIOSYSTEMS INC.
Subsidiaries of the Registrant
As of February 20, 1998, the Registrant owned the following
subsidiaries:
Registrant's
State or Jurisdiction % of
Name of Incorporation Ownership
------------------------------------------------------------------------
Nimbus Inc. Massachusetts 100
TCA Securities Corporation Massachusetts 100
International Technidyne Corporation Delaware 100
International Technidyne Corp. Ltd. UK 100
Exhibit 23
Consent of Independent Public Accountants
-----------------------------------------
As independent public accountants, we hereby consent to the
incorporation by reference of our reports dated February 12, 1998,
included in or incorporated by reference into Thermo Cardiosystems Inc.'s
Annual Report on Form 10-K for the year ended January 3, 1998, into the
Company's previously filed Registration Statement No. 33-45283 on Form
S-8, Registration Statement No. 33-45255 on Form S-8, Registration
Statement No. 33-52822 on Form S-8, Registration Statement No. 33-75654
on Form S-3, Registration Statement No. 33-78732 on Form S-8,
Registration Statement No. 33-78730 on Form S-8, Registration Statement
No. 33-78734 on Form S-8, Registration Statement No. 33-78736 on Form
S-8, Registration Statement No. 33-78728 on Form S-8, Registration
Statement No. 033-65271 on Form S-8, Registration Statement No. 333-5671
on Form S-3, Registration Statement No. 333-29287 on Form S-3, and
Registration Statement No. 333-08809 on Form S-8.
Arthur Andersen LLP
Boston, Massachusetts
March 16, 1998
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO
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<TOTAL-COSTS> 27,143
<OTHER-EXPENSES> 8,682
<LOSS-PROVISION> 120
<INTEREST-EXPENSE> 2,244
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<INCOME-TAX> 5,679
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<EPS-PRIMARY> .23
<EPS-DILUTED> .23
</TABLE>
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<LEGEND>
THIS SCHEDULE CONATINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO
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<PERIOD-END> DEC-30-1995
<CASH> 4,441
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<ALLOWANCES> 571
<INVENTORY> 9,835
<CURRENT-ASSETS> 73,837
<PP&E> 13,416
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<TOTAL-ASSETS> 124,285
<CURRENT-LIABILITIES> 9,227
<BONDS> 11,642
0
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<COMMON> 2,636
<OTHER-SE> 100,780
<TOTAL-LIABILITY-AND-EQUITY> 124,285
<SALES> 52,880
<TOTAL-REVENUES> 52,880
<CGS> 22,455
<TOTAL-COSTS> 22,455
<OTHER-EXPENSES> 7,111
<LOSS-PROVISION> 120
<INTEREST-EXPENSE> 274
<INCOME-PRETAX> 16,414
<INCOME-TAX> 5,279
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<EPS-PRIMARY> .29
<EPS-DILUTED> .27
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO
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<RESTATED>
<MULTIPLIER> 1,000
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-30-1996
<PERIOD-END> DEC-28-1996
<CASH> 11,065
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<RECEIVABLES> 10,818
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<INVENTORY> 10,807
<CURRENT-ASSETS> 86,065
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<DEPRECIATION> 6,071
<TOTAL-ASSETS> 126,083
<CURRENT-LIABILITIES> 11,108
<BONDS> 11,367
0
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<COMMON> 2,757
<OTHER-SE> 100,851
<TOTAL-LIABILITY-AND-EQUITY> 126,083
<SALES> 15,405
<TOTAL-REVENUES> 15,405
<CGS> 6,509
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<OTHER-EXPENSES> 1,813
<LOSS-PROVISION> 30
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<INCOME-PRETAX> 5,222
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<EPS-PRIMARY> .09
<EPS-DILUTED> .08
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEUDLE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO
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</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-29-1996
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0
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<EPS-PRIMARY> .18
<EPS-DILUTED> .17
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO
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</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
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<PERIOD-TYPE> 9-MOS
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<LOSS-PROVISION> 60
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<INCOME-PRETAX> 17,456
<INCOME-TAX> 6,490
<INCOME-CONTINUING> 10,966
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<EPS-PRIMARY> .28
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