<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 March 31, 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
March 31, 1995: 5,628,672.
1
<PAGE>
LIFELINE SYSTEMS, INC.
INDEX
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets - March 31, 1995
and December 31, 1994 3
Consolidated Statements of Income - Three months
ended March 31, 1995 and 1994 4
Consolidated Statements of Cash Flows - Three months
ended March 31, 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 8
2
<PAGE>
LIFELINE SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $10,889 $ 9,555
Accounts receivable, net 4,743 4,943
Inventories 1,307 1,511
Net investment in sales-type leases 2,924 3,222
Other current assets 496 280
------- -------
Total current assets 20,359 19,511
Property and equipment, net 3,825 3,450
Goodwill, net 1,670 1,748
Net investment in sales-type leases 2,383 2,941
Other assets 110 203
------- -------
Total assets $28,347 $27,853
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 2,842 $ 2,665
Accrued payroll and payroll taxes 516 1,136
Deferred revenues 944 954
Current portion of obligations under
capital lease 202 273
Income tax payable 713 -
Product warranty 402 369
Other current liabilities 35 39
Accrued restructuring charges - 200
------- -------
Total current liabilities 5,654 5,636
Obligations under capital lease 68 85
Deferred income taxes 566 924
Stockholders' equity:
Common stock, $.02 par value, 10,000,000 shares
authorized, 6,069,459 and 5,939,202 shares
issued at March 31, 1995 and December 31, 1994 121 118
Additional paid-in capital 14,842 14,533
Retained earnings 8,893 8,366
------- -------
23,856 23,017
Less: treasury stock at cost, 440,787 shares at
March 31, 1995 and 444,287 shares at
December 31,1994 (1,547) (1,559)
note receivable - officer (250) (250)
------- -------
Total stockholders' equity 22,059 21,208
------- -------
Total liabilities and stockholders' equity $28,347 $27,853
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
LIFELINE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share data)
<TABLE>
<CAPTION>
Three months ended
March 31,
---------
1995 1994
---- ----
<S> <C> <C>
Revenues
Net product sales $5,334 $4,294
Services 3,991 3,209
Finance and rental income 386 537
------ ------
Total revenues 9,711 8,040
------ ------
Costs and expenses
Cost of sales 2,105 1,586
Cost of services 1,610 1,381
Selling, general and administrative 4,834 4,227
Research and development 411 358
------ ------
Total costs and expenses 8,960 7,552
------ ------
Income from operations 751 488
------ ------
Other income (expense)
Interest income 161 54
Interest expense (2) (7)
------ ------
Total other income, net 159 47
------ ------
Income before taxes 910 535
Provision for income taxes 383 226
------ ------
Net income $ 527 $ 309
====== ======
Net income per common share:
Primary $.09 $.05
====== ======
Fully diluted $.09 $.05
====== ======
Weighted average common and
common equivalent shares outstanding:
Primary 5,941 5,823
====== ======
Fully diluted 5,941 5,823
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
LIFELINE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Three months ended
March 31,
---------
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $527 $309
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 493 587
Changes in operating assets and liabilities:
Accounts receivable 200 (649)
Inventories 204 (346)
Net investment in sales-type leases 856 712
Income taxes receivable - 538
Other current assets and other assets (123) (102)
Accounts payable and accrued expenses 189 375
Accrued payroll and payroll taxes (620) (537)
Deferred revenues and other current liabilities 19 101
Income taxes payable 713 130
Deferred income taxes (358) (427)
Accrued restructuring charges (200) (79)
------- ------
Net cash provided by operating activities 1,900 612
------- ------
Cash flows from investing activities:
Additions to property and equipment (790) (217)
Payment for business acquisition - (100)
------- ------
Net cash used in investing activities (790) (317)
------- ------
Cash flows from financing activities:
Principal payments under capital lease obligations (88) (82)
Proceeds from issuance of common stock 312 197
Purchase of treasury stock - (229)
------- ------
Net cash provided by (used in) financing activities 224 (114)
------- ------
Net increase in cash and cash equivalents 1,334 181
Cash and cash equivalents at beginning of period 9,555 7,012
------- ------
Cash and cash equivalents at end of period $10,889 $7,193
======= ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<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 March 31, 1995 and the consolidated results of
its operations and cash flows for the three months ended March 31, 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 three month period ended March 31,
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>
March 31, December 31,
1995 1994
---- ----
<S> <C> <C>
Inventories:
Purchased parts and subassemblies $ 730 $ 771
Work-in-process 333 361
Finished goods 244 379
------- -------
$ 1,307 $ 1,511
======= =======
Property and equipment:
Equipment $ 7,248 $ 6,712
Furniture and fixtures 216 171
Equipment leased to others 1,462 1,276
Equipment under capital leases 1,244 1,244
Leasehold improvements 626 612
------- -------
10,796 10,015
Less accumulated depreciation and amortization (6,971) (6,565)
------- -------
$ 3,825 $ 3,450
======= =======
</TABLE>
3. Cash paid for income taxes amounted to $28,000 and $529,000 for the
three months ended March 31, 1995 and 1994, respectively. Cash received
from income tax refunds was $538,000 for the three months ended March
31, 1994. Interest paid was $3,000 and $7,000 during the same periods in
1995 and 1994, respectively.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
Total revenues for the quarter ended March 31, 1995 were $9.7 million, an
increase of 21% compared with the total revenues of $8.0 million for the
quarter ended March 31, 1994.
Service revenues grew 24% to $4.0 million for the first quarter of 1995 from
$3.2 million for the first quarter of 1994. The growth is due to an increased
recurring revenue base, attributable to the continued increase in the number of
the Company's monitored subscribers. The subscribers resulted from additional
conversions to Lifeline Central of health care providers' programs that had
been locally monitored, as well as from increased numbers served by health care
providers that already use Lifeline Central.
Product sales increased 24% to $5.3 million for the three months ended March
31, 1995 from $4.3 million for the same period in 1994. The growth in the
current quarter is attributable to an increase in the volume of communicator
products sold as the CommuniCator Plus/TM/, introduced during 1994, continues to
be well received by the Company's customer base of health care providers. The
Company's ability to sustain the current level of product sales growth in the
long run depends upon its ability to expand the market for its personal
response services. The Company believes the CommuniCator Plus and other new
products will be a factor in meeting this challenge.
Finance and rental income, representing income earned from the Company's
portfolio of sales-type leases, decreased $151,000 to $386,000 for the first
quarter of 1995 from $537,000 for the 1994 quarter. The decline is due to the
overall aging of the lease portfolio as well as 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 three months ended March 31,
1995, compared with 37% for the same period a year ago. The increase is due to
ongoing higher overhead expenses in the Company's new facility, which it
occupied in April 1994.
Cost of services improved as a percentage of service revenues, to 40% for
the first quarter of 1995 from 43% for the first quarter of 1994. The
improvement is attributable to operating efficiencies achieved with the higher
subscriber volume as well as to cost savings that resulted from the integration
of the acquired CommuniCall business, which was relocated to the Company's
headquarters in the third quarter of 1994.
Selling, general and administrative expenses increased 14% to $4.8 million
for the three months ended March 31, 1995 from $4.2 million for the three
months ended March 31, 1994. The primary reasons for the increase were higher
spending associated with sales and marketing strategies aimed at the health
care channel and related referral networks as well as ongoing higher rent and
building expenses in the new facility. As a percentage of total revenues,
however, selling, general and administrative expenses decreased to 50% for the
current quarter from 53% in the 1994 period.
Research and development expenses increased $53,000 to $411,000 for the
first quarter of 1995 from $358,000 for the same period a year ago, due to
ongoing product development efforts. As a percentage of total revenues,
research and development remained constant at 4% for each period.
The Company's effective tax rate was 42% for the three months ended March
31, 1995 and 1994.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31, 1995 the Company's cash and cash
equivalents increased $1.3 million to $10.9 million at March 31, 1995 from $9.6
million at December 31, 1994. The increase in cash resulted from positive cash
flows from profitable operations, including payments of $.9 million received
from the Company's portfolio of sales-type leases, as well as cash received
from the assignment of new leases to a third-party leasing agent. Offsetting
these favorable changes was $.6 million paid in the first quarter for sales and
management bonuses relating to 1994 performance. In addition, for the three
months ended March 31, 1995, the Company used $.8 million to purchase property
and equipment for use in the development and manufacture of its products and
services.
7
<PAGE>
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 employee stock option plans and stock purchase plans. Of the 300,000
shares approved, the Company has purchased 187,000 shares through March 31,
1995. No shares were purchased during the first quarter of 1995.
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 anticipated acquisitions, and fund any stock buyback through at
least 1995.
PART II. OTHER INFORMATION
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 March 31, 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 10 hereof.
8
<PAGE>
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.
May 11, 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
9
<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 11 Computation of Earnings Per Share
<TABLE>
<CAPTION>
Three months ended
March 31,
---------
1995 1994
---- ----
<S> <C> <C>
Primary:
Weighted average shares outstanding 5,582 5,565
Net effect of dilutive stock and common stock
equivalents based on the treasury method 359 261
Effect of treasury shares purchased - (3)
----- -----
Total 5,941 5,823
===== =====
Net income $527 $309
==== ====
Net income per common share $.09 $.05
==== ====
Fully diluted:
Weighted average shares outstanding 5,582 5,565
Net effect of dilutive stock options based on the
treasury method 359 261
Effect of treasury shares purchased - (3)
----- -----
Total 5,941 5,823
===== =====
Net income $527 $309
===== =====
Net income per common share $.09 $.05
===== =====
</TABLE>
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 10,889
<SECURITIES> 0
<RECEIVABLES> 4,968
<ALLOWANCES> 225
<INVENTORY> 1,307
<CURRENT-ASSETS> 20,359
<PP&E> 10,796
<DEPRECIATION> 6,971
<TOTAL-ASSETS> 28,347
<CURRENT-LIABILITIES> 5,654
<BONDS> 0
<COMMON> 121
0
0
<OTHER-SE> 21,938
<TOTAL-LIABILITY-AND-EQUITY> 28,347
<SALES> 9,325
<TOTAL-REVENUES> 9,711
<CGS> 3,715
<TOTAL-COSTS> 3,715
<OTHER-EXPENSES> 5,245
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2
<INCOME-PRETAX> 910
<INCOME-TAX> 383
<INCOME-CONTINUING> 527
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 527
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
