SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
October 24, 2001
Date of Report (Date of earliest event reported)
Thoratec Corporation
(Exact Name of Registrant as Specified in its Charter)
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CALIFORNIA 1-8145 94-2340464
(State or other (Commission File Number) (I.R.S. Employer
Jurisdiction of Identification No.)
Incorporation)
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6035 STONERIDGE DRIVE
PLEASANTON, CALIFORNIA 94588
(Address of Principal Executive Offices)
(Zip Code)
Registrant's telephone number, including area code: (925) 847-8600
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EXPLANATORY NOTE
This Current Report on Form 8K is filed for the purpose of filing
financial statements.
ITEM 5. OTHER EVENTS.
We are filing updated unaudited pro forma combined condensed statements of
operations for the year ended December 30, 2000 and for the nine months ended
September 30, 2001.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(b) Pro Forma Financial Information (see below).
(c) Exhibits
None
UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENT OVERVIEW
OVERVIEW
Thoratec Corporation ("Thoratec" or "Our Company") is a leading manufacturer
of circulatory support products for use by patients with congestive heart
failure, or CHF. According to the American Heart Association, 4.7 million
patients in the United States suffer from CHF and an additional 550,000 patients
are diagnosed with this disease annually. We were the first company to receive
FDA approval to commercially market a ventricular assist device, or VAD, to
treat patients with late-stage heart failure, which comprises approximately 5%
of the CHF patient population. Our VADs are used primarily by these CHF patients
to perform some or all of the pumping function of the heart and we currently
offer the widest range of products to serve this market. We believe that our
long-standing reputation for quality and innovation and our excellent
relationships with leading cardiovascular surgeons worldwide position us to
capture growth opportunities in the expanding congestive heart failure market.
We also develop and sell products that are used by physicians and hospitals for
vascular and diagnostic applications that include vascular grafts, blood
coagulation testing devices and skin incision devices. We conduct business both
domestically and internationally.
MERGER WITH THERMO CARDIOSYSTEMS
On February 14, 2001, we completed our merger with Thermo Cardiosystems,
Inc. ("TCA"). Pursuant to the merger agreement between us and TCA dated October
3, 2000, we issued 32,226,074 shares of common stock to the shareholders of TCA
in exchange for all the outstanding common stock of TCA (38,594,281 shares
outstanding as of February 14, 2001) at an exchange ratio of 0.835 shares of
Thoratec stock for each share of TCA stock. Immediately following the
transaction, TCA's former shareholders owned 59% of our then outstanding common
stock and our former shareholders owned the remaining shares of our common
stock. Thermo Electron Corporation, the majority shareholder of TCA prior to the
merger, received 19,312,959 shares of the 32,226,074 newly issued shares.
Immediately following the merger, Thermo Electron owned 35% of our then
outstanding common stock. Pursuant to the terms of a Registration Rights
Agreement between us and Thermo Electron dated October 3, 2000, we filed a
Registration Statement on Form S-3 with the SEC, which we amended on June 15,
2001, to register for resale 4,828,240 shares of our common stock held by Thermo
Electron. Subsequent to this filing, Thermo Electron sold substantially all of
the 4,828,240 registered shares. As of September 29, 2001, Thermo Electron owned
14,560,544 of our shares, representing approximately 26% of our total
outstanding shares.
The merger with TCA was accounted for under the purchase method of
accounting and was treated as a reverse acquisition because the shareholders of
TCA owned the majority of our common stock after the merger. TCA was deemed the
acquiror for accounting and financial reporting purposes.
Due to the reverse acquisition, our assets and liabilities were recorded
based upon estimated fair values at the date of acquisition. As of September 29,
2001, approximately $309.5 million of the purchase price of $346.2 million has
been allocated to goodwill and other purchased intangible assets. As a result of
the merger, $76.9 million relating to in-process research and development has
been expensed upon completion of the merger. The goodwill and other intangibles
will be amortized over estimated useful lives of six to twenty years until we
adopt Statement of Financial Accounting Standard (SFAS) No. 142, "Goodwill and
Other Intangible Assets". SFAS No. 142 requires companies to cease amortizing
goodwill and also establishes a new method of testing goodwill for impairment on
an annual basis or on an interim basis if an event occurs or circumstances
change that would reduce the fair value of a reporting unit below its carrying
value. We will adopt SFAS No. 142 at the beginning of fiscal year 2002 and we
will stop amortizing goodwill and will begin testing goodwill for impairment
under the new standard. If an impairment occurs, such impairment could harm our
future results of operations.
The following tables set forth certain historical financial information of
Thoratec and TCA on an unaudited pro forma basis after giving effect to the
merger as a reverse acquisition. The accompanying unaudited pro forma combined
condensed statements of operations present (i) the consolidated results of
operations of TCA for the fiscal year ended December 30, 2000 combined with
the consolidated results of operations of Thoratec for the fiscal year ended
December 30, 2000, and (ii) the unaudited consolidated results of operations for
Thoratec for the pre-merger period from December 31, 2000 through February 13,
2001, combined with the unaudited consolidated results of operations for the
nine months ended September 29, 2001, which includes the results of operations
for the full nine months of TCA and the results of operations of Thoratec for
the post-merger period from February 14, 2001 through September 29, 2001. The
unaudited pro forma combined condensed statements of operations give effect to
the merger as if it had occurred at the beginning of the earliest period
presented.
The unaudited pro forma condensed combined financial information is
presented for illustrative purposes only and is not necessarily indicative of
the future results of operations of Thoratec after the merger or of the results
of operations of Thoratec that would have actually occurred had the merger been
effected as of the dates described above.
The unaudited pro forma combined condensed financial information should be
read in conjunction with the financial statements and accompanying notes and
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" we filed with the SEC on Form 10-K on March 29, 2001, the fiscal
2000 consolidated financial statements of TCA filed with the SEC on Form 8-K/A
on March 30, 2001, the interim consolidated financial statements of Thoratec
filed with the SEC on Forms 10-Q on May 14, 2001 and August 13, 2001, the
interim consolidated financial statements of TCA filed with the SEC on Form 10-Q
on November 9, 2000 and our other filings made with the SEC. Certain
reclassifications have been made to the financial statements previously filed
with the SEC to conform to current practice.
UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 30, 2000
(in thousands, except per share data)
PRO FORMA COMBINED
TCA THORATEC ADJUSTMENTS PRO FORMA
----------- -------- ----------- ---------
Product sales $83,396 $ 30,429 $ -- $ 113,825
Cost of product sales 34,830 10,919 49(1) 45,798
------- -------- -------- ---------
Gross profit 48,566 19,510 (49) 68,027
------- -------- -------- ---------
Operating expenses:
Research and development 16,190 7,245 19(1) 23,454
Selling, general and administrative 23,587 10,969 24(1) 34,580
Amortization of goodwill and purchased intangible assets -- -- 17,884(2) 17,884
Merger, restructuring and other costs 1,831 4,169 -- 6,000
------- -------- -------- ---------
Total operating expenses 41,608 22,383 17,927 81,918
------- -------- -------- ---------
Other operating income -- 614 (283)(3) 331
------- -------- -------- ---------
Income (loss) from operations 6,958 (2,259) (18,259) (13,560)
Interest and other income - net 5,005 713 1 5,719
------- -------- -------- ---------
Income (loss) before taxes and extraordinary item 11,963 (1,546) (18,258) (7,841)
Income tax expense (benefit) 4,630 183 (4,313)(4) 500
------- -------- -------- ---------
Income (loss) before extraordinary item $ 7,333 $ (1,729) $(13,945) $ (8,341)
======= ======== ======== =========
Basic and Diluted Earnings (loss) Per Share
before Extraordinary Item $ 0.19 $ (0.08) $ (0.15)
Weighted Average Shares:
Basic and Diluted 38,555 21,831 (6,362)(7) 54,024
See Notes to Unaudited Pro Forma Combined Condensed Consolidated Financial
Statements.
UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 29, 2001
(in thousands, except per share data)
THORATEC
FROM NINE MONTHS
DECEMBER 31, 2000 ENDED
THROUGH SEPTEMBER PRO FORMA COMBINED
FEBRUARY 13, 2001 2001(7) ADJUSTMENTS PRO FORMA
------------------- ------------- ------------ ------------
Product sales $ 3,524 $ 78,363 $ 81,887
Cost of product sales 1,424 36,288 7 (1) 37,719
-------- -------- ------- --------
Gross profit 2,100 42,075 (7) 44,168
-------- -------- ------- --------
Operating expenses:
Research and development 1,001 16,964 3 (1) 17,968
Selling, general and administrative 1,648 23,986 3 (1) 25,637
Amortization of goodwill and purchased intangible assets - 11,346 2,204 (6) 13,550
In-process research and development - 76,858 - 76,858
Merger and restructuring costs 1,334 6,555 - 7,889
-------- -------- ------- --------
Total operating expenses 3,983 135,709 2,210 141,902
-------- -------- ------- --------
Loss from operations (1,883) (93,634) (2,217) (97,734)
Interest and other income -- net 290 2,282 (101)(7) 2,471
-------- -------- ------- --------
Loss before taxes and extraordinary item (1,593) (91,352) (2,318) (95,263)
Income tax benefit (875) (3,100) (3,975)
-------- -------- ------- --------
Loss before extraordinary item $ (718) $(88,252) $(2,318) $(91,288)
======== ======== ======= ========
Basic and Diluted Loss Per Share
before Extraordinary Item $ (0.03) $ (1.72) $ (1.67)
Weighted Average Shares:
Basic & Diluted 22,431 51,169 (18,801)(8) 54,799
See Notes to Unaudited Pro Forma Combined Condensed Consolidated Financial
Statements.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The merger has been treated as a reverse acquisition purchase in which
TCA is treated as the acquirer of Thoratec for financial accounting purposes.
Under that method, the fair market value of the outstanding Thoratec common
stock, determined using volume-weighted average stock trading prices beginning
two days before and ending two days after the announcement of the merger, is
used to establish the purchase price for accounting purposes.
The unaudited pro forma combined condensed statements of operations are not
necessarily indicative of the operating results that would have been achieved
had the merger been completed as of the beginning of the earliest periods
presented. They should not be construed as being a representation of future
operating results of the combined companies. The unaudited pro forma combined
condensed financial information gives effect only to the adjustments set forth
in the accompanying notes and does not reflect any restructuring or merger
related costs, or any potential cost savings or other synergies that management
expects to realize as a result of the merger.
The fair values of Thoratec's net assets have been estimated for purposes of
allocating the purchase price. The purchase price and allocation of purchase
price as of September 29, 2001 are summarized as follows:
Purchase price:
Common stock................................................................. $ 306,889
Stock options................................................................ 33,524
Transaction costs............................................................ 5,780
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Total purchase price...................................................... $ 346,193
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Allocation of purchase price:
Tangible assets acquired (primarily cash and short-term investments,
receivables, inventory, and equipment and improvements).................... $ 41,018
Fair market valuation of property lease...................................... 2,285
Deferred tax asset........................................................... 4,332
Deferred compensation........................................................ 841
Intangible net assets acquired:
Patents, trademarks and trade names, purchased technology and
assembled workforce........................................................ 209,572
Goodwill................................................................... 99,940
In-process research and development.......................................... 76,858
Liabilities assumed.......................................................... (11,260)
Deferred tax liability....................................................... (77,393)
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Total...................................................................... $ 346,193
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IN-PROCESS RESEARCH AND DEVELOPMENT
In connection with the merger, approximately $77 million of the purchase
price was allocated to in-process research and development or IPR&D.
The fair value assigned to purchased IPR&D was estimated by discounting
to present value the cash flows expected to result from each Thoratec research
and development project once it has reached technological feasibility. A
discount rate consistent with the risks of each such project was used to
estimate the present value of cash flows. In estimating future cash flows,
consideration was given to other tangible and intangible assets required for the
successful development of the technology resulting from each purchased IPR&D
project and future cash flows adjusted for a charge reflecting the contribution
of these assets to each project. The estimated future cash flows resulting from
IPR&D were further adjusted for the contribution of
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS -- (CONTINUED)
core and current technology to the value of each purchased IPR&D project. Based
upon these cash flows the value assigned to purchased research and development
was the amount attributable to the efforts of Thoratec up to the time of
acquisition. This amount was estimated through application of the "stage of
completion" calculation by multiplying the estimated present value of future
cash flows excluding costs of completion by the percentage of completion of each
purchased research and development project at the time of acquisition.
The nature of the efforts to develop the purchased IPR&D into commercially
viable products principally relates to the completion or acceleration of
existing development programs, including the required completion of several
phases of clinical trials and the expenditure of those general and
administrative costs necessary to manage the projects and trials. Assuming the
approval of such products by the FDA, costs related to the full-scale
manufacturing, distribution and marketing of the products are included in the
cash flow projection upon which the IPR&D value is based. The resulting net cash
flows from such projects were based on Thoratec's estimates of revenues, cost of
sales, research and development costs, sales and marketing, general and
administrative, and the anticipated income tax effect.
The discounting of net cash flows back to their present value is based on a
discount derived in part from the weighted average cost of capital for Thoratec
and from comparable rates of return for similar technologies. The discount rates
used in discounting the net cash flows from purchased in-process research and
development projects ranged from 42% to 55%. These discount rates are higher
than the implied overall rate of return on the Thoratec acquisition due to the
inherent uncertainties surrounding the successful development of the IPR&D.
The forecast data employed in the analyses were based upon product level
forecast information obtained by Thoratec from numerous internal and external
sources. Thoratec management has reviewed and challenged the forecast data and
related assumptions and has used the information in calculating IPR&D. The
forecast data and assumptions are inherently uncertain and unpredictable.
However, based upon the information available at this time, Thoratec believes
the forecast data and assumptions to be reasonable. These assumptions may be
incomplete or inaccurate, and no assurance can be given that unanticipated
events and circumstances will not occur. Accordingly, actual results may vary
from the forecasted results. Any such variance may result in a material adverse
effect on the future financial condition and results of operations of Thoratec
after the merger.
In the allocation of purchase price to the IPR&D, the concept of
alternative future use was specifically considered for each of the programs
under development. The acquired IPR&D consists of Thoratec's completed work on
each of the identified programs at the time of acquisition. The programs are
each very specific to the disease condition and market for which they are
intended. There are no identified alternative uses for the in-process programs
if the programs fail in clinical trials or are otherwise deemed unfeasible. The
development effort for the acquired IPR&D does not possess an alternative future
use for Thoratec after the merger as defined by generally accepted accounting
principles.
Set out below is a brief description of IPR&D projects including an
estimate of when Thoratec believes it may realize revenues from the sale of
these products in the respective application.
PVAD (Discharge and Therapeutic Recovery)
PVAD is a paracorporeal ventricular assist device intended to be used to
support patients before and after hospital discharge, as a bridge-to-transplant
or as a bridge-to-recovery for patients undergoing open-heart surgery or
suffering from acute cardiac failure or various infections. Thoratec has
undertaken to participate in a series of clinical studies and trials designed to
demonstrate the system's role as a support or alternative to transplant.
Clinical trials are scheduled to begin in 2001 for these various indications.
Future costs for these programs were estimated as of the date of the
merger at approximately $2.3 million. Discount rates of 42% to 48% were applied
to the estimated cash flows associated with these programs. After the date of
the merger, as of September 29, 2001, $107,000 has been spent associated with
these programs.
TLC-II Driver
The TLC-II driver is a lightweight portable pneumatic drive unit for use
with Thoratec's VAD pump, promoting greater patient mobility and self-care.
Subsequent to the date of the merger, Thoratec has received FDA approval to
market this product in the U.S.
The future costs of this program were estimated as of the date of the
merger to be approximately $1.2 million. A discount rate of 42% was applied to
these estimated cash flows. After the date of the merger, as of September 29,
2001, $327,000 has been spent associated with this product.
IVAD and MVAD
The implantable VAD, or IVAD, is a ventricular assist device intended to
provide the option for implantation within the body. Thoratec has obtained
conditional approval to start clinical trials in the U.S. and estimates that
approval for the commercial sale of the product in the U.S. will be received in
2002.
The muscle-powered implantable VAD, or MVAD, is a ventricular assist
device intended to hydraulically power a VAD pump. Thoratec is developing
working prototypes and conducting animal studies, and estimates that approval to
market this device in the U.S. will be obtained in 2010.
The future costs of these programs as of the date of the merger were
estimated to be approximately $2.5 million for the IVAD and $6.4 million for the
MVAD. Discount rate of 45% to 55% were applied to these estimated cash flows.
After the date of the merger, as of September 29, 2001, $34,000 has been spent
associated with the IVAD program and $529,000 associated with the MVAD program.
Aria
The Aria graft is a small diameter prosthetic graft for use in coronary
artery bypass surgery. The graft is currently in clinical trials. Product launch
is anticipated in the U.S. in 2003.
The future costs of this program as of the date of the merger were
estimated to be approximately $4.7 million. A discount rate of 48% was applied
to these estimated cash flows. After the date of the merger, as of September 29,
2001, $271,000 has been spent associated with this program.
The Thoratec research and development programs currently in process were
valued as follows:
PVAD (Discharge and Therapeutic recovery)................... $12,211
TLC-II...................................................... 1,742
IVAD........................................................ 1,034
Aria Graft.................................................. 61,871
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$76,858
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ADJUSTMENTS TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The adjustments to the unaudited pro forma combined condensed statements of
operations for the year ended December 30, 2000 and for the nine months ended
September 29, 2001 in connection with the merger are presented below:
(1) Allocation of depreciation expense related to the fair value
adjustments of Thoratec's property lease and tangible property,
plant and equipment (depreciation periods from 3 to 11 years)
(2) Adjustments to amortization of goodwill and other intangible assets:
Amortization of trademarks, tradenames and purchased technology
(amortization period 20 years)............................................ $ 9,183
Amortization of patents (amortization period 8 years)..................... 2,912
Amortization of assembled workforce (amortization period 6 years)......... 435
Amortization of goodwill (amortization period 20 years)................... 4,997
Amortization of deferred compensation..................................... 357
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$17,884
=======
(3) To eliminate amortization of deferred distributor revenue as all of
Thoratec's deferred revenues are eliminated as of the date of the merger
in purchase accounting
(4) Adjustment to provision (benefit) for income taxes:
Record tax provision for Thoratec due to change in valuation allowance on
deferred tax asset........................................................ $ 677
Record deferred tax benefit related to amortization of intangible
assets.................................................................... $(4,990)
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$(4,313)
=======
(5) The column labeled Nine Months Ended September 2001 contains the unaudited
consolidated financial results of operations for Thoratec for the post
merger period from February 14, 2001 through September 29, 2001, combined
with the unaudited financial results of operations for Cardiosystems for
the full nine months ended September 29, 2001.
(6) Adjustments to amortization of goodwill and other intangible assets:
Amortization of trademarks, tradenames and purchased technology
(amortization period of 20 years)......................................... $ 1,148
Amortization of patents (amortization period 8 years)..................... 364
Amortization of assembled workforce (amortization period 6 years)......... 54
Amortization of goodwill (amortization period 20 years)................... 625
Amortization of deferred compensation..................................... 13
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$ 2,204
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ADJUSTMENTS TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(cont'd)
(7) To eliminate amortization of deferred distributor revenue as all of
Thoratec's deferred revenues are eliminated as of the date of the merger
in purchase accounting
ADJUSTMENTS TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(cont'd)
(8) The pro forma per share net income (loss) before extraordinary item is
computed by dividing the pro forma net income (loss) before
extraordinary item by the pro forma weighted average number of shares
outstanding, assuming Thoratec and Cardiosystems had merged at the
beginning of the earliest period presented.
The pro forma weighted average number of shares outstanding, and
required pro forma adjustment to the weighted shares outstanding, are
calculated as follows for the year ended December 30, 2000 and the nine
months ended September 29, 2001. No effect has been given to outstanding
options because they would have an anti-dilutive effect on earnings per
share.
BASIC and
DILUTED
---------
For the year ended December 30, 2000:
Cardiosystems weighted average shares 38,555
Multiplied by exchange ratio of 0.835 0.835
------
Equivalent Thoratec shares 32,193
Add Thoratec weighted average shares 21,831
------
Pro forma combined weighted average shares outstanding 54,024
Less combined weighted average shares before exchange
ratio effects 60,386
------
Required pro forma adjustment (6,362)
======
BASIC and
DILUTED
---------
Weighted average shares outstanding for Thoratec for
the pre-merger period 22,431
Combined weighted average shares outstanding for the
full nine months of Cardiosystems and the post-merger
period for Thoratec 51,169
-------
76,600
Pro forma combined weighted average shares outstanding 54,799
-------
Required pro forma adjustment (18,801)
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SIGNATURE
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, hereunto duly authorized.
THORATEC CORPORATION
By: /s/ D. Keith Grossman
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D. Keith Grossman
President and Chief Executive Officer
Date: October 24, 2001