SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------------------------------------------------
FORM 10-Q
(mark one)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarter Ended July 1, 2000
[ ] 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
(State or other jurisdiction of 04-3027040
incorporation or organization) (I.R.S. Employer 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
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 such filing requirements for
the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Class Outstanding at July 28, 2000
---------------------------- ----------------------------
Common Stock, $.10 par value 38,564,597
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMO CARDIOSYSTEMS INC.
Consolidated Balance Sheet
(Unaudited)
Assets
<TABLE>
<CAPTION>
July 1, January 1,
<S> <C> <C>
(In thousands) 2000 2000
----------------------------------------------------------------------------------- -------- ----------
Current Assets:
Cash and cash equivalents $ 435 $ 418
Advance to affiliate 23,091 13,961
Short-term available-for-sale investments, at quoted market value
(amortized cost of $102,795 and $82,767) 102,146 82,559
Accounts receivable, less allowances of $949 and $1,009 15,234 14,368
Inventories:
Raw materials 3,617 3,863
Work in process 8,610 7,859
Finished goods 2,988 3,223
Deferred tax asset 4,172 4,128
Prepaid expenses and other current assets 20 69
-------- --------
160,313 130,448
-------- --------
Property, Plant, and Equipment, at Cost 22,587 21,420
Less: Accumulated depreciation and amortization 15,307 14,061
-------- --------
7,280 7,359
-------- --------
Long-term Available-for-sale Investments, at Quoted Market Value
(amortized cost of $28,427) - 28,108
-------- --------
Deferred Tax Asset 2,611 2,611
-------- --------
Other Assets 1,249 1,402
-------- --------
$171,453 $169,928
======== ========
2
<PAGE>
THERMO CARDIOSYSTEMS INC.
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
July 1, January 1,
(In thousands except share amounts) 2000 2000
---------------------------------------------------------------------------------- ----------- ----------
Current Liabilities:
Accounts payable $ 3,837 $ 4,235
Accrued payroll and employee benefits 3,461 3,788
Accrued warranty expenses 1,133 1,420
Accrued income taxes 964 1,067
Other accrued expenses (Note 5) 4,250 3,754
Due to parent company and affiliated companies 1,093 713
-------- --------
14,738 14,977
-------- --------
Subordinated Convertible Debentures (includes $1,500 due to
Thermo Electron in 2000) 54,838 58,011
-------- --------
Shareholders' Investment:
Common stock, $.10 par value, 100,000,000 shares authorized; 4,063 4,053
40,626,130 and 40,531,130 shares issued
Capital in excess of par value 96,519 96,006
Retained earnings 53,909 49,500
Treasury stock at cost, 2,061,533 and 2,054,669 shares (51,795) (51,807)
Deferred compensation (417) (521)
Accumulated other comprehensive items (Note 2) (402) (291)
-------- --------
101,877 96,940
-------- --------
$171,453 $169,928
======== ========
The accompanying notes are an integral part of these consolidated financial statements.
3
<PAGE>
THERMO CARDIOSYSTEMS INC.
Consolidated Statement of Income
(Unaudited)
Three Months Ended
------------------
July 1, July 3,
(In thousands except per share amounts) 2000 1999
---------------------------------------------------------------------------------- ------- -------
Revenues $22,762 $20,215
------- -------
Costs and Operating Expenses:
Cost of revenues 9,532 8,516
Selling, general, and administrative expenses 6,137 5,582
Research and development expenses 3,676 3,680
Restructuring and unusual costs (Note 5) 566 -
------- -------
19,911 17,778
------- -------
Operating Income 2,851 2,437
Interest Income 1,877 1,738
Interest Expense (includes $17 to Thermo Electron in 2000) (747) (905)
------- -------
Income Before Provision for Income Taxes and Extraordinary Item 3,981 3,270
Provision for Income Taxes 1,533 1,260
------- -------
Income Before Extraordinary Item 2,448 2,010
Extraordinary Item, Net of Provision for Income Taxes of $117 (Note 6) 191 -
------- -------
Net Income $ 2,639 $ 2,010
======= =======
Basic and Diluted Earnings per Share (Note 3) $ .07 $ .05
======= =======
Weighted Average Shares (Note 3):
Basic 38,566 38,419
======= =======
Diluted 38,577 38,474
======= =======
The accompanying notes are an integral part of these consolidated financial statements.
4
<PAGE>
THERMO CARDIOSYSTEMS INC.
Consolidated Statement of Income
(Unaudited)
Six Months Ended
------------------
July 1, July 3,
(In thousands except per share amounts) 2000 1999
---------------------------------------------------------------------------------- ------- -------
Revenues $42,844 $39,676
------- -------
Costs and Operating Expenses:
Cost of revenues 17,824 16,883
Selling, general, and administrative expenses 11,992 11,044
Research and development expenses 7,650 7,252
Restructuring and unusual costs (Note 5) 707 -
------- -------
38,173 35,179
------- -------
Operating Income 4,671 4,497
Interest Income 3,682 3,460
Interest Expense (includes $17 to Thermo Electron in 2000) (1,494) (1,810)
------- -------
Income Before Provision for Income Taxes and Extraordinary Item 6,859 6,147
Provision for Income Taxes 2,641 2,364
------- -------
Income Before Extraordinary Item 4,218 3,783
Extraordinary Item, Net of Provision for Income Taxes of $117 (Note 6) 191 -
------- -------
Net Income $ 4,409 $ 3,783
======= =======
Basic and Diluted Earnings per Share (Note 3) $ .11 $ .10
======= =======
Weighted Average Shares (Note 3):
Basic 38,542 38,416
======= =======
Diluted 38,579 38,464
======= =======
The accompanying notes are an integral part of these consolidated financial statements.
5
<PAGE>
THERMO CARDIOSYSTEMS INC.
Consolidated Statement of Cash Flows
(Unaudited)
Six Months Ended
--------------------
July 1, July 3,
(In thousands) 2000 1999
---------------------------------------------------------------------------------- --------- ---------
Operating Activities:
Net income $ 4,409 $ 3,783
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 1,443 1,379
Provision for losses on accounts receivable - 60
Extraordinary item, net of income taxes (Note 6) (191) -
Other noncash items 104 -
Changes in current accounts:
Accounts receivable (873) (1,723)
Inventories (275) (15)
Other current assets 47 65
Accounts payable (397) (123)
Other current liabilities 75 130
--------- ---------
Net cash provided by operating activities 4,342 3,556
--------- ---------
Investing Activities:
Advances to affiliate, net (9,130) (20,042)
Proceeds from maturities of available-for-sale investments 36,663 105,648
Purchases of available-for-sale investments (28,541) (127,844)
Purchases of property, plant, and equipment (1,232) (1,012)
Other 246 14
--------- ---------
Net cash used in investing activities (1,994) (43,236)
--------- ---------
Financing Activities:
Net proceeds from issuance of Company common stock 582 144
Payment of withholding taxes related to stock option exercises (47) (52)
Purchases of Company common stock and subordinated convertible
debentures (Note 6) (2,825) (925)
--------- ---------
Net cash used in financing activities (2,290) (833)
--------- ---------
Exchange Rate Effect on Cash (41) (13)
--------- ---------
Increase (Decrease) in Cash and Cash Equivalents 17 (40,526)
Cash and Cash Equivalents at Beginning of Period 418 42,026
--------- ---------
Cash and Cash Equivalents at End of Period $ 435 $ 1,500
========= =========
The accompanying notes are an integral part of these consolidated financial statements.
6
<PAGE>
THERMO CARDIOSYSTEMS INC.
Notes to Consolidated Financial Statements
1. General
The interim consolidated financial statements presented have been prepared
by Thermo Cardiosystems Inc. (the Company) without audit and, in the opinion of
management, reflect all adjustments of a normal recurring nature necessary for a
fair statement of the financial position at July 1, 2000, the results of
operations for the three- and six-month periods ended July 1, 2000, and July 3,
1999, and the cash flows for the six-month periods ended July 1, 2000, and July
3, 1999. Interim results are not necessarily indicative of results for a full
year.
The consolidated balance sheet presented as of January 1, 2000, has been
derived from the consolidated financial statements that have been audited by the
Company's independent public accountants. The consolidated financial statements
and notes are presented as permitted by Form 10-Q and do not contain certain
information included in the annual financial statements and notes of the
Company. The consolidated financial statements and notes included herein should
be read in conjunction with the financial statements and notes included in the
Company's Annual Report on Form 10-K for the fiscal year ended January 1, 2000,
filed with the Securities and Exchange Commission.
2. Comprehensive Income
Comprehensive income combines net income and "other comprehensive items,"
which represents certain amounts that are reported as components of
shareholders' investment in the accompanying balance sheet, including foreign
currency translation adjustments and unrealized net of tax gains and losses from
available-for-sale investments. During the second quarter of 2000 and 1999, the
Company's comprehensive income totaled $2,603,000 and $1,817,000, respectively.
During the first six months of 2000 and 1999, the Company's comprehensive income
totaled $4,298,000 and $3,571,000, respectively.
</TABLE>
3. Earnings per Share
Basic and diluted earnings per share were calculated as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ -------------------
July 1, July 3, July 1, July 3,
<S> <C> <C> <C> <C>
(In thousands except per share amounts) 2000 1999 2000 1999
------------------------------------------------------------ ------- ------- ------- -------
Basic
Net Income $ 2,639 $ 2,010 $ 4,409 $ 3,783
------- ------- ------- -------
Weighted Average Shares 38,566 38,419 38,542 38,416
------- ------- ------- -------
Basic Earnings per Share $ .07 $ .05 $ .11 $ .10
======= ======= ======= =======
Diluted
Net Income $ 2,639 $ 2,010 $ 4,409 $ 3,783
------- ------- ------- -------
Weighted Average Shares 38,566 38,419 38,542 38,416
Effect of Stock Options 11 55 37 48
------- ------- ------- -------
Weighted Average Shares, as Adjusted 38,577 38,474 38,579 38,464
------- ------- ------- -------
Diluted Earnings per Share $ .07 $ .05 $ .11 $ .10
======= ======= ======= =======
7
<PAGE>
THERMO CARDIOSYSTEMS INC.
3. Earnings per Share (continued)
Options to purchase 964,000 and 1,489,000 shares of common stock for the
second quarter of 2000 and 1999, respectively, and 649,000 and 1,439,000 shares
of common stock for the first six months of 2000 and 1999, respectively, were
not included in the computation of diluted earnings per share because their
effect would have been antidilutive due to the options' exercise prices
exceeding the average market price for the common stock.
In addition, the computation of diluted earnings per share for each period
excludes the effect of assuming the conversion of the Company's 4 3/4%
subordinated convertible debentures, convertible at $31.415 per share, because
the effect would be antidilutive. The principal amount of the debentures was
$54,838,000 and $70,000,000 at July 1, 2000, and July 3, 1999, respectively.
During the second quarter of 2000, the Company recorded an extraordinary
gain in connection with the repurchase of its 4 3/4% subordinated convertible
debentures, which increased basic and diluted earnings per share by $.01 in the
second quarter of 2000. The extraordinary gain had no effect on earnings per
share in the first six months of 2000.
4. Business Segment Information
Three Months Ended Six Months Ended
------------------ -------------------
July 1, July 3, July 1, July 3,
(In thousands) 2000 1999 2000 1999
------------------------------------------------------------ ------- ------- ------- -------
Revenues:
Left Ventricular-assist Systems $12,768 $10,503 $23,094 $20,255
Other Medical Equipment 9,994 9,712 19,750 19,421
------- ------- ------- -------
$22,762 $20,215 $42,844 $39,676
======= ======= ======= =======
Income Before Provision for Income Taxes and
Extraordinary Item:
Left Ventricular-assist Systems (a) $ 1,485 $ 490 $ 1,577 $ 504
Other Medical Equipment (b) 1,661 2,186 3,629 4,434
Corporate (c) (295) (239) (535) (441)
------- ------- ------- -------
Total operating income 2,851 2,437 4,671 4,497
Interest income, net 1,130 833 2,188 1,650
------- ------- ------- -------
$ 3,981 $ 3,270 $ 6,859 $ 6,147
======= ======= ======= =======
(a) Includes restructuring and unusual costs of $360,000 and $460,000 in the three- and six-month periods
ended July 1, 2000, respectively.
(b) Includes restructuring and unusual costs of $206,000 and $247,000 in the three- and six-month periods
ended July 1, 2000, respectively.
(c) Primarily general and administrative expenses.
5. Restructuring and Unusual Costs
During the second quarter of 2000, the Company recorded restructuring and
unusual costs of $566,000 for employee retention costs in connection with the
proposed plan to sell the Company (Note 7). The retention costs are being
recorded ratably over the period through which the employees must remain
employed to qualify for the payment. Of the total costs incurred during the
second quarter of 2000, $360,000 was recorded in the Left Ventricular-assist
Systems segment and $206,000 was recorded in the Other Medical Equipment
segment.
8
<PAGE>
THERMO CARDIOSYSTEMS INC.
5. Restructuring and Unusual Costs (continued)
During the first quarter of 2000, the Company recorded restructuring and
unusual costs of $141,000 for employee retention costs. Of the total costs
incurred during the first quarter of 2000, $100,000 was recorded in the Left
Ventricular-assist Systems segment and $41,000 was recorded in the Other Medical
Equipment segment. A summary of the changes in the liability for retention
costs, which is included in other accrued expenses in the accompanying 2000
balance sheet, follows:
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
(In thousands)
-------------------------------------------------------------------- -----
Balance at January 1, 2000 $ -
Costs incurred in 2000 707
Usage (21)
-----
Balance at July 1, 2000 $ 686
=====
The Company expects to make the payments for employee retention during the
remainder of 2000 and 2001.
6. Extraordinary Item
During the second quarter of 2000, the Company purchased $3,173,000
principal amount of its 4 3/4% subordinated convertible debentures for
$2,825,000 in cash, resulting in an extraordinary gain of $191,000, net of taxes
of $117,000.
7. Proposed Sale of the Company
On January 31, 2000, Thermo Electron Corporation and the Company announced
that a buyer is being sought for the Company. This action is part of a major
reorganization plan under which Thermo Electron will spin in, spin off, and sell
various businesses to focus solely on its core measurement and detection
instruments business.
8. Recent Accounting Pronouncement
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) 101, "Revenue Recognition in Financial Statements."
SAB 101 includes requirements for when shipments may be recorded as revenue when
the terms of the sale include customer acceptance provisions or an obligation of
the seller to install the product. In such instances, SAB 101 generally requires
that revenue recognition occur at completion of installation and/or upon
customer acceptance. SAB 101 requires that companies conform their revenue
recognition practices to the requirements therein no later than the fourth
quarter of calendar 2000 through recording a cumulative net of tax effect of the
change in accounting. The Company has not completed the analysis to determine
the effect that SAB 101 will have on its financial statements.
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations
----------------------------------------------------------------------------------------------
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Management's
Discussion and Analysis of Financial Condition and Results of Operations. 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 Exhibit 13 to the Company's Annual Report on Form 10-K for the
fiscal year ended January 1, 2000, filed with the Securities and Exchange
Commission.
9
<PAGE>
THERMO CARDIOSYSTEMS INC.
Overview
The Company's businesses operate in two segments: Left Ventricular-assist
Systems (LVAS) and Other Medical Equipment. The LVAS segment researches,
develops, and manufactures two implantable heart-assist devices: a pneumatic, or
air-driven, system, and an electric version. 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. This segment includes the Company's Nimbus Medical Inc. subsidiary.
Nimbus has been involved in artificial heart technology for over 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 the high-speed rotary blood pump that is the basis for HeartMate
II, the next generation of the Company's LVAS. Because of its smaller size,
HeartMate II may potentially be used to provide cardiac support in small adults
and in children.
The Other Medical Equipment segment consists of International Technidyne
Corporation, a leading manufacturer of near-patient, whole-blood coagulation
testing equipment and related disposables, as well as premium-quality,
single-use, skin-incision devices.
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 was
obtained, only the direct and indirect costs of the LVAS could be recovered,
which were 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. In September 1998, the FDA granted approval for commercial sale in the
U.S. of the electric LVAS as a bridge to transplant. As a result, the Company
earns a profit on the sale of that device.
On January 31, 2000, Thermo Electron Corporation and the Company announced
that a buyer is being sought for the Company, as part of a major reorganization
plan at Thermo Electron (Note 7).
Results of Operations
Second Quarter 2000 Compared With Second Quarter 1999
-----------------------------------------------------
Total revenues increased to $22.8 million in the second quarter of 2000
from $20.2 million in the second quarter of 1999. LVAS segment revenues
increased to $12.8 million in 2000 from $10.5 million in 1999, primarily due to
a $2.1 million increase in revenues from the Company's electric LVAS, principally
due to higher demand. Revenues from government research and development contracts
at Nimbus were $0.2 million in the second quarter of 2000 and 1999. The Company
expects that Nimbus will complete its existing government contracts during the
third quarter of 2000 and that Nimbus will focus on technological research, as
well as compete for new government contracts, in the foreseeable future.
Other Medical Equipment segment revenues increased to $10.0 million in the
second quarter of 2000 from $9.7 million in the second quarter of 1999,
primarily due to a $1.0 million increase in revenues from coagulation systems
due to higher demand, offset in part by a decrease in revenues from
skin-incision devices due to lower demand.
The gross profit margin was 58% in the second quarter of 2000 and 1999.
The gross profit margin in the LVAS segment increased primarily due to an
increase in the average sales price for the electric LVAS. This increase was
offset by a decrease in the gross profit margin in the Other Medical Equipment
segment, principally as a result of changes in product mix.
Selling, general, and administrative expenses as a percentage of revenues
decreased to 27% in the second quarter of 2000 from 28% in the second quarter of
1999, primarily due to increased revenues. Selling, general, and administrative
expenses increased to $6.1 million in 2000 from $5.6 million in 1999, primarily
due to an increase in selling and marketing expenses in support of higher
revenues. During the remainder of 2000, the Company plans to increase its
selling and marketing costs relating to the electric LVAS, which was approved by
the FDA for commercial sale in September 1998. Higher selling and marketing
costs may adversely affect the Company's operating results.
10
<PAGE>
THERMO CARDIOSYSTEMS INC.
Second Quarter 2000 Compared With Second Quarter 1999 (continued)
-----------------------------------------------------
Research and development expenses were $3.7 million in the second quarter
of 2000 and 1999. Research and development expenses were 16% and 18% of revenues
in 2000 and 1999, respectively. The Company expects research and development
expenses to increase over the life of the clinical trial being conducted to
evaluate the electric LVAS as an alternative to medical therapy, which is
estimated to be two to three years. There can be no assurance that the Company
will complete this study.
Restructuring and unusual costs of $0.6 million were recorded by the
Company, primarily in the LVAS segment, in the second quarter of 2000 for
employee retention costs in connection with Thermo Electron's plan to sell the
Company (Notes 5 and 7).
Interest income increased to $1.9 million in the second quarter of 2000
from $1.7 million in the second quarter of 1999, primarily due to an increase in
interest rates. Interest expense decreased to $0.7 million in the second quarter
of 2000 from $0.9 million in the second quarter of 1999, primarily due to the
purchase by the Company of $15.2 million principal amount of its 4 3/4%
subordinated convertible debentures in 2000 and 1999 (Note 6).
The effective tax rate was 39% in the second quarter of 2000 and 1999. The
effective tax rates exceeded the statutory federal income tax rate primarily due
to the impact of state income taxes.
The Company recorded an extraordinary gain of $0.2 million in the second
quarter of 2000 as a result of the purchase by the Company of $3.2 million
principal amount of its 4 3/4% subordinated convertible debentures (Note 6).
First Six Months 2000 Compared With First Six Months 1999
---------------------------------------------------------
Total revenues increased to $42.8 million in the first six months of 2000
from $39.7 million in the first six months of 1999. LVAS segment revenues
increased to $23.1 million in 2000 from $20.3 million in 1999, primarily due to
a $2.4 million increase in revenues from the Company's electric LVAS, principally
due to higher demand. Revenues from government research and development contracts
at Nimbus were $0.3 million in the first six months of 2000 and 1999.
Other Medical Equipment segment revenues increased to $19.8 million in the
first six months of 2000 from $19.4 million in the first six months of 1999,
primarily due to a $1.3 million increase in revenues from coagulation systems
due to higher demand, offset in part by a decrease in revenues from
skin-incision devices due to lower demand.
The gross profit margin increased to 58% in the first six months of 2000
from 57% in the first six months of 1999 due to gross profit margin improvement
in the LVAS segment. This improvement was primarily due to an increase in the
average sales price for the electric LVAS, as well as manufacturing
efficiencies. The gross profit margin for the Other Medical Equipment segment
decreased slightly, principally as a result of changes in product mix.
Selling, general, and administrative expenses as a percentage of revenues
were 28% in the first six months of 2000 and 1999. Selling, general, and
administrative expenses increased to $12.0 million in 2000 from $11.0 million in
1999, primarily due to an increase in selling and marketing expenses in support
of higher revenues.
Research and development expenses increased to $7.7 million in the first
six months of 2000 from $7.3 million in the first six months of 1999, primarily
due to a $0.3 million increase in expenses in the LVAS segment, principally for
the development of the HeartMate II and continuing expenses related to a
clinical trial being conducted to evaluate the electric LVAS as an alternative
to medical therapy. Research and development expenses were 18% of revenues in
2000 and 1999. To a lesser extent, research and development expenses increased
due to increased product development activities in the Other Medical Equipment
segment.
11
<PAGE>
THERMO CARDIOSYSTEMS INC.
First Six Months 2000 Compared With First Six Months 1999 (continued)
---------------------------------------------------------
Restructuring and unusual costs of $0.7 million were recorded by the
Company, for the reason discussed in the results of operations for the second
quarter (Notes 5 and 7).
Interest income increased to $3.7 million in the first six months of 2000
from $3.5 million in the first six months of 1999, primarily due to an increase
in interest rates. Interest expense decreased to $1.5 million in the first six
months of 2000 from $1.8 million in the first six months of 1999, primarily due
to the purchase by the Company of $15.2 million principal amount of its 4 3/4%
subordinated convertible debentures in 2000 and 1999 (Note 6).
The effective tax rate was 39% and 38% in the first six months of 2000 and
1999, respectively. The effective tax rates exceeded the statutory federal
income tax rate primarily due to the impact of state income taxes.
The Company recorded an extraordinary gain of $0.2 million in the first
six months of 2000 as a result of the purchase by the Company of $3.2 million
principal amount of its 4 3/4% subordinated convertible debentures (Note 6).
Liquidity and Capital Resources
Consolidated working capital was $145.6 million at July 1, 2000, compared
with $115.5 million at January 1, 2000. Cash, cash equivalents, advance to
affiliate, and short- and long-term available-for-sale investments were $125.7
million at July 1, 2000, compared with $125.0 million at January 1, 2000. During
the first six months of 2000, $4.3 million of cash was provided by operating
activities. An increase in accounts receivable used $0.9 million of cash,
primarily due to increased revenues. Cash of $0.4 million was used to fund a
decrease in accounts payable, primarily due to the timing
of payments.
During the first six months of 2000, the Company's primary investing
activity, excluding advance to affiliate and available-for-sale investments
activity, was the purchase of property, plant, and equipment for $1.2 million.
The Company expects to make capital expenditures of approximately $2.8 million
during the remainder of 2000, primarily for manufacturing and tooling equipment
and leasehold improvements.
During the first six months of 2000, the Company used $2.8 million of cash
to purchase subordinated convertible debentures pursuant to authorizations by
the Company's Board of Directors. As of July 1, 2000, the Company had a remaining
authorization to purchase $12.3 million of Company common stock or subordinated
convertible debentures in the open market or negotiated transactions through
October 28, 2000. Any such repurchases would be funded from working capital. In
addition, the Company sold 60,000 shares of Company common stock in February
2000 for $0.3 million in connection with the exercise of a warrant previously
granted to a third party. As of July 1, 2000, the Company had outstanding $54.8
million principal amount of 4 3/4% subordinated convertible debentures due 2004.
As a result of Thermo Electron's proposed sale of the Company (Note 7), these
debentures may be required to be repaid prior to the maturity date of 2004,
depending upon the terms of the sale.
The Company believes that it has adequate resources to meet its financial
needs for the foreseeable future.
Item 3 - Quantitative and Qualitative Disclosure About Market Risk
------------------------------------------------------------------
The Company's exposure to market risk from changes in interest rates and
equity prices has not changed materially from its exposure at year-end 1999.
12
<PAGE>
THERMO CARDIOSYSTEMS INC.
Item 4 - Submission of Matters to a Vote of Security Holders
------------------------------------------------------------
On May 25, 2000, at the Annual Meeting of Stockholders, the stockholders elected seven incumbent
directors to a one-year term expiring in 2001. The Directors elected at the meeting were: Dr. Walter
J. Bornhorst, Dr. Elias P. Gyftopoulos, Mr. John T. Keiser, Mr. R. Michael Kleine, Dr. Leonard Laster,
Mr. Victor L. Poirier, and Dr. Nicholas T. Zervas. Dr. Bornhorst, Dr. Gyftopoulos, Mr. Kleine, Dr.
Laster, and Dr. Zervas each received 35,159,485 shares voted in favor of his election and 89,251 shares
voted against. Mr. Keiser and Mr. Poirier each received 35,146,690 shares voted in favor of his
election and 102,046 shares voted against. No abstentions or broker nonvotes were recorded on the
election of directors.
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
-----------------------------------------
(a) Exhibits
See Exhibit Index on the page immediately preceding exhibits.
(b) Reports on Form 8-K
None.
13
<PAGE>
THERMO CARDIOSYSTEMS INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized as of the 9th day of August 2000.
THERMO CARDIOSYSTEMS INC.
/s/ Theo Melas-Kyriazi
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Theo Melas-Kyriazi
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
14
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THERMO CARDIOSYSTEMS INC.
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
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27 Financial Data Schedule.
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