<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1995 Commission File Number 0-13617
LIFELINE SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2537528
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
640 MEMORIAL DRIVE
CAMBRIDGE, MASSACHUSETTS 02139
(Address of principal executive offices) (Zip Code)
(617) 679-1000
(Registrant's telephone number, including area code)
____________________
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common stock $0.02 par value
----------------------------
(Title of Class)
Indicate by check mark whether the registrant (i) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (ii) has been subject to such filing
requirements for the past 90 days. Yes X No
-----
Number of shares outstanding of this issuer's class of common stock as of June
30, 1995: 5,643,475
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LIFELINE SYSTEMS, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets -June 30, 1995
and December 31, 1994 3
Consolidated Statements of Income - Three and six months
ended June 30, 1995 and 1994 4
Consolidated Statements of Cash Flows - Six months
ended June 30, 1995 and 1994 5
Notes to Consolidated Financial Statements 6
ITEM 2.
Management's Discussion and Analysis of Results of
Operations and Financial Condition 7-8
PART II. OTHER INFORMATION 9
</TABLE>
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LIFELINE SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
--------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $11,419 $ 9,555
Accounts receivable, trade, net 5,440 4,943
Inventories 1,173 1,511
Net investment in sales-type leases 2,557 3,222
Other current assets 559 280
------- -------
Total current assets 21,148 19,511
Property and equipment, net 4,216 3,450
Goodwill, net 2,230 1,748
Net investment in sales-type leases 1,915 2,941
Other assets 142 203
------- -------
Total assets $29,651 $27,853
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 3,947 $ 2,665
Accrued payroll and payroll taxes 821 1,136
Deferred revenues 900 954
Current portion of obligations under capital lease 133 273
Product warranty 449 369
Other current liabilities 140 39
Accrued restructuring charges -- 200
------- -------
Total current liabilities 6,390 5,636
Obligations under capital lease 52 85
Deferred income taxes 332 924
Stockholders' equity:
Common stock $.02 par value, 10,000,000 shares
authorized 6,084,262 and 5,939,202
issued at June 30, 1995 and December 31, 1994 121 118
Additional paid-in capital 14,916 14,533
Retained earnings 9,637 8,366
------- -------
24,674 23,017
Less: treasury stock at cost, 440,787 shares at
June 30, 1995 and 444,287 at December 31, 1994 (1,547) (1,559)
Note receivable - officer (250) (250)
------- -------
Total stockholders' equity 22,877 21,208
------- -------
Total liabilities and stockholders' equity $29,651 $27,853
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
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LIFELINE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share data)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 June 30
-------------------- -------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Net product sales $ 6,315 $5,066 $11,649 $ 9,360
Services 4,435 3,360 8,426 6,569
Finance and rental income 330 466 716 1,003
------- ------ ------- -------
Total revenues 11,080 8,892 20,791 16,932
------- ------ ------- -------
Costs and expenses
Cost of sales 2,439 2,180 4,544 3,766
Cost of services 1,670 1,491 3,280 2,872
Selling, general and administrative 5,447 4,196 10,281 8,423
Research and development 448 453 859 811
------- ------ ------- -------
Total costs and expenses 10,004 8,320 18,964 15,872
------- ------ ------- -------
Income from operations 1,076 572 1,827 1,060
------- ------ ------- -------
Other income (expense)
Interest income 209 68 370 122
Interest expense (2) (6) (4) (13)
------- ------ ------- -------
Total other income, net 207 62 366 109
------- ------ ------- -------
Income before taxes 1,283 634 2,193 1,169
Provision for income taxes 539 265 922 491
------- ------ ------- -------
Net income $ 744 $ 369 $ 1,271 $ 678
======= ====== ======= =======
Net income per common share:
Primary $.12 $.06 $.21 $.12
======= ====== ======= =======
Fully Diluted $.12 $.06 $.21 $.12
======= ====== ======= =======
Weighted average common and
common equivalent shares outstanding:
Primary 6,015 5,746 5,968 5,791
======= ====== ======= =======
Fully Diluted 6,084 5,746 6,058 5,791
======= ====== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements
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<PAGE>
LIFELINE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Six months ended
June 30
-----------------
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,271 $ 678
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 1,005 992
Changes in operating assets and liabilities:
Accounts receivable (397) (1,071)
Inventories 338 (28)
Net investment in sales-type leases 1,691 1,655
Income taxes receivable -- 538
Other current assets and other assets (218) (178)
Accounts payable and accrued expenses 1,154 350
Accrued payroll and payroll taxes (315) (381)
Deferred revenues and other current liabilities 127 105
Deferred income taxes (592) (779)
Accrued restructuring charges (200) (117)
------- -------
Net cash provided by operating activities 3,864 1,764
Cash flows from investing activities:
Additions to property and equipment (1,309) (836)
Payment for business acquisition (904) (200)
------- -------
Net cash used in investing activities (2,213) (1,036)
Cash flows from financing activities:
Principal payments under capital lease obligations (173) (152)
Proceeds from common stock options exercised 386 238
Purchase of treasury stock -- (325)
------- -------
Net cash provided by (used in) financing activities 213 (239)
------- -------
Net increase in cash and cash equivalents 1,864 489
Cash and cash equivalents at beginning of period 9,555 7,012
------- -------
Cash and cash equivalents at end of period $11,419 $ 7,501
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
LIFELINE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The information furnished has been prepared from the accounts without
audit. In the opinion of the Company, the accompanying consolidated
financial statements contain all adjustments necessary, consisting only of
those of a normal recurring nature to present fairly its consolidated
financial position as of June 30, 1995 and the consolidated results of its
operations and cash flows for the three and six months ended June 30, 1995
and 1994.
While the Company believes that the disclosures presented are adequate to
make the information not misleading, these statements should be read in
conjunction with the consolidated financial statements and the related
notes included in the Company's audited financial statements for the year
ended December 31, 1994.
The results of operations for the six month period ended June 30, 1995 are
not necessarily indicative of the results expected for the full year.
2. Details of certain balance sheet captions are as follows (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
---- ----
<S> <C> <C>
Inventories:
Purchased parts and subassemblies $654 $771
Work-in-process 434 361
Finished goods 85 379
-- ---
$1,173 $1,511
====== ======
Property and equipment:
Equipment $7,520 $6,712
Furniture and fixtures 235 171
Equipment leased to others 1,990 1,276
Equipment under capital leases 1,244 1,244
Leasehold improvements 626 612
--- ---
11,615 10,015
Less accumulated depreciation and
amortization (7,399) (6,565)
------ ------
$4,216 $3,450
====== ======
</TABLE>
3. Cash paid for income taxes amounted to $1,414,000 and $1,170,000 for the
six months ended June 30, 1995 and 1994, respectively. Cash received from
income tax refunds was $538,000 for the six months ended June 30, 1994.
Interest paid was $4,000 and $13,000 during the same periods in 1995 and
1994, respectively.
4. In May 1995, the Company completed the acquisition of Tele-Response &
Support Services, Inc. of Raynham, Massachusetts, an affiliate of Martha's
Vineyard Hospital Foundation of Oak Bluffs, Massachusetts. Tele-Response
was a distributor of Lifeline's emergency response monitoring services. The
purchase price was approximately $1,000,000 of which $900,000 was paid at
the closing, with the remainder payable during the third quarter of 1995.
The acquisition was accounted for as a purchase transaction, and, as a
result, the Company recorded goodwill of approximately $600,000 which is
being amortized over the estimated useful life of seven years.
The results of the acquired business have been included in the Company's
consolidated financial statements from the date of the acquisition. The
Company does not expect the acquisition to have a material impact on its
1995 operating results.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
Total revenues for the quarter ended June 30, 1995 were $11,080,000, an increase
of 25% compared with total revenues of $8,892,000 for the quarter ended June 30,
1994. For the six months ended June 30, 1995, total revenues increased 23% to
$20,791,000 compared with $16,932,000 for the same period in 1994.
Service revenues for the second quarter of 1995 were $4,435,000, an increase of
32% compared with $3,360,000 for the second quarter of 1994. For the six months
ended June 30, 1995, service revenues were $8,426,000, 28% higher than the
$6,569,000 recorded for the six months ended June 30, 1994. The growth in the
Company's monitored subscribers has resulted in an increased base of recurring
service revenues. This increase is from continued conversions to Lifeline
Central(TM) of existing self-monitored health care provider programs as well as
the overall growth in the number of subscribers to programs that are already
monitored by Lifeline Central(TM). Also, the acquisition of Tele-Response &
Support Services, Inc. in May 1995 slightly contributed to the increase.
Product sales increased 25% from $5,066,000 in the second quarter of 1994 to
$6,315,000 for the second quarter of 1995. For the six months ended June 30,
1995, product sales increased 24% to $11,649,000, from $9,360,000 for the
comparable period in 1994. As a result of health care providers continuing to
upgrade their existing inventory of older products, the Company is experiencing
a significant increase in the sales volume of the Communicator Plus(TM) product.
While product sales during 1995 continue to be strong, the Company's ability to
sustain the current level of product sales growth depends upon its ability to
upgrade the existing equipment base and to expand the market.
Finance and rental income, representing income earned from the Company's
portfolio of sales-type leases, decreased $136,000 to $330,000 for the three
months ended June 30, 1995 from $466,000 for the same period in 1994. For the
six months ended June 30, 1995, finance and rental income decreased $287,000 to
$716,000 compared with $1,003,000 for the six months ended June 30, 1994. The
decline is due to the overall aging of the lease portfolio in addition to the
arrangement, entered into in 1994, to direct new lease activity to a third party
leasing agent.
Cost of sales was 39% of product sales for the second quarter of 1995, an
improvement from 43% for the second quarter of 1994. The lower product cost was
due to favorable factory utilization due to increased shipments. Additionally,
in 1994 higher promotional activity relating to the Communicator Plus(TM)
product introduction had an unfavorable impact during the comparable period. For
the six months ended June 30, 1995, cost of sales represented 39% of product
sales compared with 40% for the six months ended June 30, 1994 The higher costs
associated with the Company's new facility, which it occupied in April 1994,
were offset by the favorable impact of increased volume of shipments in 1995.
Cost of services, as a percentage of service revenue, improved to 38% for the
second quarter of 1995 from 44% for the second quarter of 1994. For the six
months ended June 30, 1995, cost of services decreased to 39% of service
revenues compared with 44% for the comparable period in 1994. The improvement
is due to continued operating efficiencies achieved with the higher subscriber
volume along with cost savings that resulted from the integration of the
CommuniCall business at the Company's headquarters in the third quarter 1994.
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<PAGE>
As a percentage of total revenues, selling, general and administrative expenses
were 49% for the three and six months ended June 30, 1995 and 47% and 50%,
respectively, for the same periods in 1994. The increase in the second quarter
was primarily due to higher spending associated with sales and marketing
strategies aimed at the health care channel. This included the addition of
sales personnel to focus on referral network development and the expansion of
our full service offering which is a comprehensive service management option
designed to optimize the strengths of our local Lifeline programs. Also, the
costs associated with Company incentives and employee training programs
contributed to the increase. For the remainder of the year, selling, general
and administrative expenses are expected to remain stable or improve slightly as
a percentage of total revenues.
For both the three and six month periods ended June 30, 1995, research and
development expenses were 4% of revenues compared with 5% for the same periods
in 1994. Research and development efforts are focused on ongoing product
improvements and technological enhancements. The Company intends to maintain
1995 research and development expenses, as a percentage of total revenues, at
approximately the same level as in the first half of the year.
The Company's effective tax rate was 42% for the three and six month periods
ended June 30, 1995 and 1994.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 30, 1995, the Company's cash and cash
equivalents increased $1,864,000 to $11,419,000 at June 30, 1995 from
$9,555,000 at December 31, 1994. The increase in cash was provided by
profitable operations and the assignment of new leases to a third party leasing
agent as well as $1,691,000 received from the Company's portfolio of sales-type
leases. Offsetting these favorable changes was $900,000 paid in the second
quarter for the purchase of Tele-Response & Support Services, Inc. in addition
to $1,309,000 utilized to purchase property and equipment for use in the
operations of the business and in the development and manufacture of products
and services.
In May 1995, the Company completed the acquisition of Tele-Response & Support
Services, Inc. of Raynham, Massachusetts, an affiliate of Martha's Vineyard
Hospital Foundation of Oak Bluffs, Massachusetts. Tele-Response was a
distributor of Lifeline's emergency response monitoring services. The purchase
price was approximately $1,000,000 of which $900,000 was paid at the closing,
with the remainder payable during the third quarter of 1995. The acquisition
was accounted for as a purchase transaction, and, as a result, the Company
recorded goodwill of approximately $600,000 which is being amortized over the
estimated useful life of seven years. The results of the acquired business have
been included in the Company's consolidated financial statements from the date
of the acquisition. The Company does not expect the acquisition to have a
material impact on its 1995 operating results.
In October, 1993, The Company's Board of Directors approved the repurchase of up
to 300,000 shares of the Company's stock from time to time in the open market
for general corporate purposes, including shares for use in connection with the
employee stock option plans and stock purchase plans. Of the 300,000 shares
approved, the Company has purchased 187,000 shares through June 30, 1995. No
shares were purchased during the first half of 1995, nor are any foreseen at
this time.
Given the Company's current cash and cash equivalents and revenue levels,
funding requirements for operations and in support of future growth are expected
to be met primarily from existing cash balances and funds generated from
operations. The Company currently believes that cash provided from these
sources will be sufficient to meet its operating and investing requirements,
including any potential acquisitions.
-8-
<PAGE>
PART II. OTHER INFORMATION
The Annual Meeting of Stockholders of the Company was held on May 17, 1995.
The stockholders of the Company elected members of the Board of Directors,
approved the 1995 Stock Option Plan and ratified the selection of Coopers &
Lybrand L.L.P. as the Company's auditors for 1995. A summary of the votes
follows:
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
<TABLE>
<CAPTION>
NUMBER OF SHARES OF COMMON STOCK
--------------------------------
BROKER
FOR ABSTAINED WITHHELD NON-VOTES
--- --------- -------- ---------
<S> <C> <C> <C> <C>
Steven M. Tritman 4,071,714 -0- 18,384 N/A
Gordon M. Vineyard M.D. 4,071,714 -0- 18,384 N/A
Carolyn C. Roberts 4,071,714 -0- 18,384 N/A
<CAPTION>
BROKER
FOR ABSTAINED WITHHELD NON-VOTES
--- --------- -------- ---------
<S> <C> <C> <C> <C>
Approval of 1995 Stock
Option Plan 4,000,003 66,415 23,680 N/A
<CAPTION>
BROKER
FOR ABSTAINED WITHHELD NON-VOTES
--- --------- -------- ---------
<S> <C> <C> <C> <C>
Selection of Coopers & Lybrand L.L.P. 4,059,982 7,227 22,889 N/A
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Reports on Form 8-K - No reports on Form 8-K were filed for the three
months ended June 30, 1995.
(b) Exhibits - The Exhibit which is filed with this Report or which is
incorporated herein by reference is set forth in the Exhibit Index which
appears on page 11 hereof.
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LIFELINE SYSTEMS, INC.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
August 10, 1995 LIFELINE SYSTEMS, INC.
- -------------------- ----------------------------------
Date Registrant
/s/ Ronald Feinstein
----------------------------------
Ronald Feinstein
Chief Executive Officer
/s/ Dennis M. Hurley
----------------------------------
Dennis M. Hurley
Vice President of Finance and
Administration
Principal Financial and Accounting
Officer
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<PAGE>
EXHIBIT INDEX
=============
The following designated exhibits are, as indicated below, either filed
herewith or have heretofore been filed with the Securities and Exchange
Commission under the Securities Act of 1933 or the Securities and Exchange Act
of 1934 and are referred to and incorporated herein by reference to such
filings.
EXHIBIT NO. EXHIBIT SEC DOCUMENT REFERENCE
- ----------- ------- ----------------------
EXHIBIT 11 COMPUTATION OF EARNINGS PER SHARE
EXHIBIT 27 FINANCIAL DATA SCHEDULE FILED ELECTRONICALLY
-11-
<PAGE>
EXHIBIT 11 COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 June 30
------------------------ ------------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
PRIMARY
- -------
Weighted average shares outstanding 5,639 5,547 5,588 5,596
Net effect of dilutive stock options and
warrants based on the treasury method 376 209 378 227
Effect of treasury shares purchased -- (10) 2 (32)
------ ------ ------ ------
Total 6,015 5,746 5,968 5,791
====== ====== ====== ======
Net Income $ 744 $ 369 $1,271 $ 678
====== ====== ====== ======
Net Income per common share $ .12 $ .06 $ .21 $ .12
====== ====== ====== ======
FULLY DILUTED
- -------------
Weighted average shares outstanding 5,639 5,547 5,588 5,596
Net effect of dilutive stock options and
warrants based on the treasury method 445 209 468 227
Effect of treasury shares purchased -- (10) 2 (32)
------ ------ ------ ------
Total 6,084 5,746 6,058 5,791
====== ====== ====== ======
Net Income $ 744 $ 369 $1,271 $ 678
====== ====== ====== ======
Net Income per common share $ .12 $ .06 $ .21 $ .12
====== ====== ====== ======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 11,419
<SECURITIES> 0
<RECEIVABLES> 5651
<ALLOWANCES> 211
<INVENTORY> 1,173
<CURRENT-ASSETS> 21,148
<PP&E> 11,615
<DEPRECIATION> 7,399
<TOTAL-ASSETS> 29,651
<CURRENT-LIABILITIES> 6,390
<BONDS> 0
<COMMON> 121
0
0
<OTHER-SE> 22,756
<TOTAL-LIABILITY-AND-EQUITY> 29,651
<SALES> 10,750
<TOTAL-REVENUES> 11,080
<CGS> 4,109
<TOTAL-COSTS> 4,109
<OTHER-EXPENSES> 5,895
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2
<INCOME-PRETAX> 1,283
<INCOME-TAX> 539
<INCOME-CONTINUING> 744
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 744
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
