<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A-NO. 1
/X/ Annual Report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 1997.
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from .................... to
.......................
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 Identification No.)
Incorporation or Organization)
640 MEMORIAL DRIVE, CAMBRIDGE, MASSACHUSETTS 02139
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (617) 679-1000
The sole purpose of this Form 10K/A is to file Annual Reports on Form 11-K
for Lifeline's Employee Savings and Investment Plans.
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this amendment to be signed on its
behalf by the undersigned, thereunto duly authorized.
LIFELINE SYSTEMS, INC. (REGISTRANT)
/s/ Dennis M. Hurley
BY Dennis M. Hurley
Vice President, Finance
Chief Financial Officer
DATE August 5, 1998
<PAGE>
PAGE 1
EXHIBIT INDEX
Exhibit No. Exhibit
(99.1) Annual Report for the Lifeline Employees' Savings and Investment
Plan
(99.1a) Consent of Independent Public Accountants
<PAGE>
PAGE 1 EXHIBIT (99.1)
ANNUAL REPORT
Pursuant to Section 15(d) of the
Securities Act of 1934
For the Year Ended
December 31, 1997
___________________________________
THE LIFELINE EMPLOYEES' SAVINGS AND INVESTMENT PLAN
---------------------------------------------------
<PAGE>
THE LIFELINE EMPLOYEES' SAVINGS AND INVESTMENT PLAN
FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULES
TO ACCOMPANY 1997 FORM 5500
ANNUAL REPORT OF EMPLOYEE BENEFIT PLAN
UNDER ERISA OF 1974
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<PAGE>
THE LIFELINE EMPLOYEES' SAVINGS AND INVESTMENT PLAN
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULES
for the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
PAGES(S)
--------
<S> <C>
Report of Independent Accountants 2
Financial Statements:
Statements of Net Assets Available for Plan Benefits, with Fund Information,
December 31, 1997 and 1996 3-4
Statements of Changes in Net Assets Available for Plan Benefits, with Fund Information,
for the years ended December 31, 1997 and 1996 5-6
Notes to Financial Statements 7-13
Supplemental Schedules:
Line 27a - Schedule of Assets Held for Investment Purposes as of December 31, 1997 14
Line 27d - Schedule of Series Transactions in Excess of 5% of the Current Value of
Plan Assets for the year ended December 31, 1997 15
</TABLE>
Certain supplemental schedules have been omitted because they are either not
required or not applicable under the Employee Retirement Income Security Act of
1974.
1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Plan Administrator of the
Lifeline Employees' Savings and Investment Plan:
We have audited the accompanying statements of net assets available for plan
benefits of the Lifeline Employees' Savings and Investment Plan (the "Plan") as
of December 31, 1997 and 1996, and the related statements of changes in net
assets available for plan benefits for the years then ended. These financial
statements are the responsibility of the Plan's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for plan benefits of the Plan as
of December 31, 1997 and 1996, and the changes in net assets available for plan
benefits for the years then ended in conformity with generally accepted
accounting principles.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules listed in the
index on page 1 are presented for the purpose of additional analysis and are not
a required part of the basic financial statements but are supplementary
information required by the Department of Labor's Rules and Regulations for
Reporting and Disclosure under the Employee Retirement Income Security Act of
1974. The fund information in the statement of net assets available for plan
benefits and the statement of changes in net assets available for plan benefits
is presented for purposes of additional analysis rather than to present the net
assets available for plan benefits and changes in net assets available for plan
benefits of each fund. The supplemental schedules and fund information have been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, are fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
The investments held by the Plan are stated at current value as required for
presentation on Form 5500. As explained in Note D to the financial statements,
the information provided by the custodian does not include the historical cost
of investments. Therefore, the schedule of assets held for investment purposes
and the schedules of reportable transactions do not disclose the historical
cost of investments. Disclosure of this information is required by the
Department of Labor's Rules and Regulations for Reporting and Disclosure under
the Employee Retirement Income Security Act of 1974.
/s/ PricewaterhouseCoopers, LLP
Boston, Massachusetts
June 27, 1998
2
<PAGE>
THE LIFELINE EMPLOYEES' SAVINGS AND INVESTMENT PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS, WITH FUND INFORMATION
December 31, 1997
<TABLE>
<CAPTION>
SSGA SSGA SSGA SSGA SSGA
ASSETS Lifeline Bond S&P Matrix Small Active
Fixed Market 500 Index Equity Cap International
Fund Fund Fund Fund Fund Fund
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Investments, at fair value (Notes C and D):
Bank pooled fund $ 1,192,549
Shares of registered investment companies 358,802 $ 53,403 $ 357,117 $ 2,888,748 $ 513,782 $ 121,273
Lifeline Systems, Inc. stock
Participant loans receivable
----------- ----------- ----------- ----------- ----------- -----------
Total investments 1,551,351 53,403 357,117 2,888,748 513,782 121,273
Employer contributions receivable 1,951 559 2,898 2,813 3,296 1,257
Employee contributions receivable 5,236 1,442 8,089 7,509 10,996 3,343
----------- ----------- ----------- ----------- ----------- -----------
Total assets 1,558,538 55,404 368,104 2,899,070 528,074 125,873
----------- ----------- ----------- ----------- ----------- -----------
Net assets available for plan benefits $ 1,558,538 $ 55,404 $ 368,104 $ 2,899,070 $ 528,074 $ 125,873
=========== =========== =========== =========== =========== ===========
<CAPTION>
Life Life
Solutions Solutions Life
ASSETS Income & Balanced Solutions Lifeline
Growth Growth Growth Systems, Inc. Participant Total
Fund Fund Fund Common Stock Loan Fund Plan
------ ------ ------ ------------ ----------- ------
<S> <C> <C> <C> <C> <C> <C>
Investments, at fair value (Notes C and D):
Bank pooled fund $ 1,192,549
Shares of registered investment companies $ 359,837 $ 706,692 $ 229,045 5,588,699
Lifeline Systems, Inc. stock $ 1,433,511 1,433,511
Participant loans receivable $ 365,662 365,662
---------- ---------- ---------- ----------- ---------- -----------
Total investments 359,837 $ 706,692 $ 229,045 1,433,511 365,662 8,580,421
Employer contributions receivable 1,341 2,856 3,371 3,126 23,468
Employee contributions receivable 3,023 6,882 8,135 7,866 62,521
---------- ---------- ---------- ----------- ---------- -----------
Total assets 364,201 716,430 240,551 1,444,503 365,662 8,666,410
---------- ---------- ---------- ----------- ---------- -----------
Net assets available for plan benefits $ 364,201 $ 716,430 $ 240,551 $ 1,444,503 $ 365,662 $ 8,666,410
========== ========== ========== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
THE LIFELINE EMPLOYEES' SAVINGS AND INVESTMENT PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS, WITH FUND INFORMATION
December 31, 1996
<TABLE>
<CAPTION>
Fidelity Fidelity
Fidelity Asset Blue Chip Lifeline
Income Balanced Allocation Growth Systems, Inc. Participant Conduit Total
ASSETS Fund Fund Fund Fund Common Stock Loan Fund Account Plan
------ ---------- ---------- ----------- ------------ ----------- ------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investments, at fair
value (Notes C and D):
Bank pooled fund $ 1,619,950 $ 1,619,950
Shares of registered
investment companies $ 641,432 $ 401,737 $ 2,215,056 3,258,225
Lifeline Systems, Inc.
stock $ 1,028,405 1,028,405
Participant loans
receivable $ 295,447 295,447
Bank account $ 21,439 21,439
----------- --------- ---------- ----------- ------------ ----------- -------- -----------
Total investments 1,619,950 641,432 401,737 2,215,056 1,028,405 295,447 21,439 6,223,466
Employer contributions
receivable 13,118 8,110 6,114 26,485 10,276 64,103
Employee contributions
receivable 13,173 8,819 8,153 30,538 10,114 70,797
Loan payment receivable 4,004 1,906 865 4,105 2,418 13,298
Interfund transfers 75,388 80,322 34,914 190,624
----------- --------- ---------- ----------- ------------ ----------- -------- -----------
Total assets 1,725,633 740,589 416,869 2,276,184 1,086,127 295,447 21,439 6,562,288
LIABILITIES AND
NET ASSETS
AVAILABLE FOR PLAN
BENEFITS
Interfund transfers pending 84,364 106,260 190,624
Other payables 377 48 (12) 191 67 21,439 22,110
----------- --------- ---------- ----------- ------------ ----------- -------- -----------
Total liabilities 377 48 84,352 106,451 67 21,439 212,734
----------- --------- ---------- ----------- ------------ ----------- -------- -----------
Net assets available
for plan benefits $ 1,725,256 $ 740,541 $ 332,517 $ 2,169,733 $ 1,086,060 $ 295,447 - $ 6,349,554
=========== ========= ========== =========== ============ =========== ======== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
THE LIFELINE EMPLOYEES' SAVINGS AND INVESTMENT PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS,
WITH FUND INFORMATION
for the year ended December 31, 1997
<TABLE>
<CAPTION>
SSGA SSGA SSGA
Lifeline Bond S&P Matrix SSGA
Fixed Market 500 Index Equity Small Cap
Fund Fund Fund Fund Fund
-------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C>
Additions:
Employee contributions and rollovers $ 79,537 $ 24,877 $ 132,534 $ 115,360 $ 155,723
Employer contributions 26,924 7,111 37,789 33,481 43,427
Interest and dividend income 1,803 14,529 487,702 33,254
Net appreciation in fair value of investments 97,153 811 17,476 197,813 2,209
Interfund transfers 1,748,902 26,898 172,798 2,281,648 304,892
---------- ---------- ---------- ---------- ----------
Total additions 1,952,516 61,500 375,126 3,116,004 539,505
Deductions:
Benefits and withdrawals 254,848 5,879 3,444 86,517 3,194
Net depreciation in fair value of investments
Administrative expenses 255 23 139 257 55
Interfund transfers 138,875 194 3,439 130,160 8,182
---------- ---------- ---------- ---------- ----------
Total deductions 393,978 6,096 7,022 216,934 11,431
---------- ---------- ---------- ---------- ----------
Net additions (deductions) 1,558,538 55,404 368,104 2,899,070 528,074
Net assets available for plan benefits, beginning of year
---------- ---------- ---------- ---------- ----------
Net assets available for plan benefits, end of year $1,558,538 $ 55,404 $ 368,104 $2,899,070 $ 528,074
========== ========== ========== ========== ==========
<CAPTION>
Life Life
SSGA Solutions Solutions Life
Active Income & Balanced Solutions Lifeline
International Growth Growth Growth Systems, Inc.
Fund Fund Fund Fund Common Stock
-------- ------ --------- ------ ------------
<S> <C> <C> <C> <C> <C>
Additions:
Employee contributions and rollovers $ 61,672 $ 54,118 $ 101,867 $ 150,033 $ 161,523
Employer contributions 16,572 17,231 35,729 46,812 49,245
Interest and dividend income 7,471 19,237 52,747 21,311 37
Net appreciation in fair value of investments 25,298 67,226 434,470
Interfund transfers 74,471 350,558 737,625 46,145 63,755
---------- ---------- ---------- ---------- ----------
Total additions 160,186 466,442 995,194 264,301 709,030
Deductions:
Benefits and withdrawals 7,258 10,250 73,583 3,532 40,810
Net depreciation in fair value of investments 24,319 10,057
Administrative expenses 19 110 283 152 108
Interfund transfers 2,717 91,881 204,898 10,009 309,669
---------- ---------- ---------- ---------- ----------
Total deductions 34,313 102,241 278,764 23,750 350,587
---------- ---------- ---------- ---------- ----------
Net additions (deductions) 125,873 364,201 716,430 240,551 358,443
Net assets available for plan benefits, beginning of year 1,086,060
---------- ---------- ---------- ---------- ----------
Net assets available for plan benefits, end of year $ 125,873 $ 364,201 $ 716,430 $ 240,551 $1,444,503
========== ========== ========== ========== ==========
<CAPTION>
Fidelity Fidelity
Fidelity Asset Blue Chip
Participant Income Balanced Allocation Growth
Loan Fund Fund Fund Fund Fund
----------- ------ --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Additions
Employee contributions and rollovers
Employer contributions
Interest and dividend income $ 22,642
Net appreciation in fair value of investments
Interfund transfers 205,054
----------- ---------- ---------- ---------- ----------
Total additions 227,696
Deductions:
Benefits and withdrawals 12,806
Net depreciation in fair value of investments
Administrative expenses
Interfund transfers 144,675 $1,725,256 $ 740,541 $ 332,517 $2,169,733
----------- ---------- ---------- ---------- ----------
Total deductions 157,481 1,725,256 740,541 332,517 2,169,733
----------- ---------- ---------- ---------- ----------
Net additions (deductions) 70,215 (1,725,256) (740,541) (332,517) (2,169,733)
Net assets available for plan benefits, beginning of year 295,447 1,725,256 740,541 332,517 2,169,733
----------- ---------- ---------- ---------- ----------
Net assets available for plan benefits, end of year $ 365,662 - - - -
=========== ========== ========== ========== ==========
<CAPTION>
Total
Plan
----------
<S> <C>
Additions:
Employee contributions and rollovers $1,037,244
Employer contributions 314,321
Interest and dividend income 660,733
Net appreciation in fair value of investments 842,456
Interfund transfers 6,012,746
----------
Total additions 8,867,500
Deductions:
Benefits and withdrawals 502,121
Net depreciation in fair value of investments 34,376
Administrative expenses 1,401
Interfund transfers 6,012,746
----------
Total deductions 6,550,644
----------
Net additions (deductions) 2,316,856
Net assets available for plan benefits, beginning of year 6,349,554
----------
Net assets available for plan benefits, end of year $8,666,410
==========
</TABLE>
5
<PAGE>
THE LIFELINE EMPLOYEES' SAVINGS AND INVESTMENT PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS,
WITH FUND INFORMATION
for the year ended December 31, 1996
<TABLE>
<CAPTION>
Fidelity Lifeline
Fidelity Asset Fidelity Blue Systems, Inc.
Income Balanced Allocation Chip Growth Common
Fund Fund Fund Fund Stock
------ -------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Additions:
Employee contributions and rollovers $ 145,952 $ 96,252 $ 72,736 $ 359,562 $ 121,414
Employer contributions 53,704 30,461 20,039 94,608 35,612
Interest and dividend income 90,095 30,440 31,680 156,823 238
Net appreciation in fair value of investments 25,680 11,758 132,400 316,414
Interfund transfers 148,796 103,273 31,503 300,440 90,261
---------- -------- --------- ---------- ----------
Total additions 438,547 286,106 167,716 1,043,833 563,939
Deductions:
Benefits and withdrawals 121,283 80,372 20,270 204,979 51,180
Net depreciation in fair value of investments 2,692
Administrative expenses 1,463 300 14 950 351
Interfund transfers 209,782 112,227 98,234 176,325 180,710
---------- -------- --------- ---------- ----------
Total deductions 335,220 192,899 118,518 382,254 232,241
---------- -------- --------- ---------- ----------
Net additions 103,327 93,207 49,198 661,579 331,698
Net assets available for plan benefits, beginning of year 1,621,929 647,334 283,319 1,508,154 754,362
---------- -------- --------- ---------- ----------
Net assets available for plan benefits, end of year $1,725,256 $740,541 $ 332,517 $2,169,733 $1,086,060
========== ======== ========= ========== ==========
<CAPTION>
Participant Total
Loan Fund Plan
----------- -----
<S> <C> <C>
Additions:
Employee contributions and rollovers $ 795,916
Employer contributions 234,424
Interest and dividend income $ 18,347 327,623
Net appreciation in fair value of investments 486,252
Interfund transfers 270,209 944,482
----------- ------------
Total additions 288,556 2,788,697
Deductions:
Benefits and withdrawals 16,141 494,225
Net depreciation in fair value of investments 2,692
Administrative expenses 3,078
Interfund transfers 167,204 944,482
----------- ------------
Total deductions 183,345 1,444,477
----------- ------------
Net additions 105,211 1,344,220
Net assets available for plan benefits, beginning of year 190,236 5,005,334
----------- ------------
Net assets available for plan benefits, end of year $ 295,447 $ 6,349,554
=========== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
THE LIFELINE EMPLOYEES' SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
A. DESCRIPTION OF THE PLAN:
-----------------------
The following description of the Lifeline Employees' Savings and Investment
Plan (the "Plan") provides only general information. Participants should
refer to the plan document for a more complete description of the Plan's
provisions.
GENERAL
The Plan is a defined contribution profit-sharing plan covering all
U.S. employees of Lifeline Systems, Inc. (the "Company") who work at
least 1,000 hours during the plan year. Employees become eligible to
participate on the entry date following six months of service. The
Plan was established in 1984 to provide participants an opportunity to
defer taxes on their savings and is intended to be a "qualified cash
or deferred arrangement" under certain sections of the Internal
Revenue Code. It is subject to the provisions of the Employee
Retirement Income Security Act of 1974 (ERISA).
CONTRIBUTIONS
Participants may contribute from 1% to 15% of their pay on a pretax
basis subject to the annual dollar limits established by the Internal
Revenue Service (IRS) and plan limitations. Participants are
immediately vested in their contributions and earnings thereon.
Rollover contributions from qualified 401(k) plans are also allowed.
Withdrawals are permitted as specified by IRS regulations.
Employer contributions may vary from year to year in such amounts as
have been voted by the Company pursuant to the provisions of the Plan.
For the year ended December 31, 1997, the Company matched 100% of the
first 2% contributed and 50% of the next 2% contributed up to a
maximum of $500 per quarter, or $2,000 per year. This was an increase
from 1996 in which the Company contributed up to a maximum of $400 per
quarter, or $1,600 per year per participant.
LOANS
With the approval of the plan administrator, participants may borrow
from their vested account balance attributable to employee pre-tax,
matching, discretionary, and rollover contributions. The maximum
amount that may be borrowed is 50% of a participant's vested interest
or $50,000, whichever is less. The minimum loan is $1,000. The
interest rate is fixed and will be equal to the prime rate plus one
and one-half percent. The maximum loan period is five years. The
interest rate charged on participant loans ranged from 10.00% to
10.25% in 1997 and 9.75% to 10.00% in 1996.
Continued
7
<PAGE>
THE LIFELINE EMPLOYEES' SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS, CONTINUED
BENEFITS AND WITHDRAWALS
The Plan allows benefits to be paid in the form of a cash payment or an in-kind
distribution for employees who invest in the Company Stock Fund. Several annuity
options may be selected by participants (or their beneficiaries) with account
balances exceeding $3,500 as of December 1, 1990.
The Plan also provides for a preretirement survivor annuity to participants of
the Plan with account balances exceeding $3,500 as of December 1, 1990, which
allows 100% of a married participant's benefits to be used to provide benefits
to his/her spouse if the participant dies before benefit payments commence. This
provision may be waived once the participant reaches age 35 and obtains written
consent from his/her spouse. Benefits to participants not married who die before
retirement will be distributed to designated beneficiaries. No death benefits
were paid in 1997 or 1996.
Hardship withdrawals are allowed under the provisions of the Plan.
VESTING
Plan participants are at all times 100% vested in the value of their own
contributions, rollovers, employer matching contributions, and earnings thereon.
INVESTMENT OPTIONS
Effective January 1, 1997, the Company changed its Plan administrator from New
York Life Benefit Services, Inc. to State Street Solutions. In addition, the
Plan has changed its investment advisor to State Street Global Advisors ("SSGA")
and as such now offers ten investment options which still include stock of the
Company to which employees may allocate their contributions and the
Company-matching contributions.
Participants may invest in the following investment options effective January 1,
1997:
. Lifeline Fixed Fund - This fund contains the following two funds:
(1) Bankers Trust Company Pyramid Guaranteed Investment Contracts
Fund - This fund invests in Guaranteed Investment Contracts and
Bank Investment Contracts issued by life insurance companies or
banks. The estimated range of returns for the fund is announced
at the beginning of each year. Interest is credited monthly. This
represented the Income Fund prior to January 1, 1997.
(ii) SSGA Stable Value Fund - This fund invests in Investment
Contracts issued by insurance companies, banks and other
financial institutions, as well as enhanced short-term investment
products. The fund's primary objective is to preserve the
principal amount of contributions to the fund.
Continued
8
<PAGE>
THE LIFELINE EMPLOYEES' SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS, CONTINUED
. SSGA Bond Market Fund - The SSGA Bond Market Fund invests in a
diversified portfolio of high quality bonds and strives to maintain
a portfolio duration similar to that of the Lehman Brothers
Aggregate Bond Index. Duration is a measurement of price
sensitivity to interest rate changes.
. SSGA S&P 500 Index Fund - This fund allows investors to follow the
performance of the country's largest, most established companies.
It seeks to mirror the performance of the S&P 500 index, one of the
most widely followed stock market indicators, generally considered
to be representative of the overall U.S. stock market.
. SSGA Matrix Equity Fund - This fund looks to outperform the overall
stock market while maintaining a broadly diversified approach.
Stock markets tend to move in cycles, sometimes favoring growth-
oriented stocks and other times favoring stable "value" stocks.
This Fund's strategy is to find the right mix of growth stocks and
value stocks in order to participate in up markets and provide
protection in down markets.
. SSGA Small Cap Fund - This fund allows investors to capitalize on
the potential growth of small cap companies, those with market
capitalization's ranging in value from $100 million to $1.5
billion. The fund seeks to meet or exceed the returns of the
Russell 2000 Index which provides broad exposure to the U.S. small
cap stock market.
. SSGA Active International Fund - This fund seeks to maximize
capital growth while investing primarily in international stocks.
The selection process combines both value and growth measures to
identify attractive securities. Investments will be made in, but
not limited to countries included in the Morgan Stanley Capital
International Europe, Australia and Far East (MSCI EAFE Index).
. Life Solutions Income & Growth Fund - Life Solutions Income &
Growth is the least aggressive of the Life Solutions asset
allocation portfolios. Its long-term average allocation is expected
to be approximately 35% in U.S. stocks, 5% in international stocks,
and 60% in bonds.
. Life Solutions Growth Fund - Life Solutions Growth is the most
aggressive of the Life Solutions asset allocation portfolios. Its
long-term average allocation is expected to be approximately 65% in
U.S. stocks, 15% in international stocks, and 20% in bonds.
. Life Solutions Balanced Growth Fund - Life Solutions Balanced
Growth is the moderate Life Solutions asset allocation portfolios.
Its long-term average allocation is expected to be approximately
50% in U.S. stocks, 10% in international stocks, and 40% in bonds.
. Lifeline Systems, Inc. Common Stock - The Plan's trustee purchases
the stock of the Company on the open market.
Continued
9
<PAGE>
THE LIFELINE EMPLOYEES' SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS, CONTINUED
Participants invested in the following investment options prior to January
1, 1997:
. Fidelity Balanced Fund - Funds are invested in shares of a registered
investment company that invests in stocks and bonds. This is a
"moderate risk" mutual fund investing no greater than 75% of its
assets in common stocks and no less than 25% in bonds.
. Fidelity Asset Allocation Fund - Funds are invested in shares of a
registered investment company that invests in stocks, bonds, and
short-term fixed income investments. The assets will normally be
invested within the following ranges: 10% - 60% in stocks; 20% - 60%
in bonds; and 0 - 70% in short term fixed income instruments.
. Fidelity Blue Chip Growth Fund - Funds are invested in shares of a
registered investment company that invests in stocks, seeking long-
term earnings growth. At least 65% of its assets are invested in the
common stocks of large blue chip growth compaines.
Prior to January 1, 1997 the Plan also has a Conduit Account which is
invested with PNC Bank and is utilized as a "pass-through" holding
account for employer and employee contributions. Funds are deposited
into this account and allocated to other investment options based on
participant's elections.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------
BASIS OF PRESENTATION
The financial statements of the Plan have been prepared under the
accrual basis of accounting and in conformity with generally accepted
accounting principles.
INVESTMENT VALUATION
Investments in mutual and pooled funds and the Company's common stock
are valued at fair market value using year-end closing prices.
Participant loans are valued at cost which approximates fair value.
Interest and dividend income is recorded as earned on the accrual
basis.
The Plan presents in the statement of changes in net assets available
for plan benefits the net appreciation (depreciation) in the fair
value of its investments which consists of the realized gains or
losses and the unrealized appreciation (depreciation) on those
investments.
CONTRIBUTIONS
Employee and employer matching contributions are recorded in the
period in which the employee payroll deductions are made.
Continued
10
<PAGE>
THE LIFELINE EMPLOYEES' SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS, CONTINUED
PAYMENT OF BENEFITS
Benefit payments are recorded when paid.
EXPENSES
All administrative expenses and fees are paid by the Company except for
loan fees which are paid by the Plan.
USE OF ESTIMATES
The preparation of the plan's financial statements in conformity with
generally accepted accounting principles requires the plan administrator to
make significant estimates and assumptions that affect the reported amounts
of net assets available for plan benefits at the date of the financial
statements and the changes in net assets available for plan benefits during
the reporting period and, when applicable, disclosures of contingent assets
and liabilities at the date of the financial statements. Actual results
could differ from those estimates.
RISKS AND UNCERTAINTIES
The plan provides for various investment options in any combination of
stocks, bonds, fixed income securities, mutual funds, and other investment
securities. Investment securities are exposed to various risks, such as
interest rate, market, and credit risks. Due to the level of risk
associated with certain investment securities, it is at least reasonably
possible that changes in the values of investment securities will occur in
the near term and that such changes could materially affect participants'
account balances and the amounts reported in the statement of net assets
available for plan benefits.
C. INVESTMENT CONTRACTS WITH INSURANCE COMPANY AND BANK:
----------------------------------------------------
In January 1992 the Plan entered into an investment agreement with Bankers
Trust Company to enter into the Bankers Trust Pyramid Guaranteed Investment
Contracts Fund, a pooled fund established and managed by Bankers Trust
Company. The Fund invests primarily in Guaranteed Investment Contracts
("GICs") and Bank Investment Contracts issued by life insurance companies,
banks or other financial institutions, and any of the Bankers Trust
Commingled short-term investments funds. The Fund's assets are valued at fair
market value, provided, however, assets for which there is no readily
ascertainable market value are valued at fair value determined in good faith
by the Trustee of the Fund. The Fund expects to maintain a constant unit
value of $1.00. Withdrawals are permitted and are subject to a deferred
payout schedule.
In February 1997, the Plan terminated its participation in the Bankers Trust
Guaranteed Investment Contracts Fund and entered into an Investment
Management Agreement with Bankers Trust
Continued
11
<PAGE>
THE LIFELINE EMPLOYEES' SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS, CONTINUED
Company. The Investment Management Agreement allows the Company to receive
payouts of the Plan's remaining balance in six installments from February
1, 1997 through October 1,2001.
D. INVESTMENTS:
-----------
Investments held by the Plan at December 31, 1997 and 1996 are summarized
as follows:
<TABLE>
<CAPTION>
1997 1996
FAIR FAIR
DESCRIPTION VALUE VALUE
----------- ----- -----
<S> <C> <C>
Income Fund $1,619,950*
Fidelity Balanced Fund 641,432*
Fidelity Asset Allocation Fund 401,737*
Fidelity Blue Chip Growth Fund 2,215,056*
Lifeline Fixed Fund $1,551,351*
SSGA Bond Market Fund 53,403
SSGA S&P 500 Index Fund 357,117
SSGA Matrix Equity Fund 2,888,748*
SSGA Small Cap Fund 513,782*
SSGA Active International Fund 121,273
Life Solutions Income & Growth Fund 359,837
Life Solutions Balanced Growth Fund 706,692*
Life Solutions Growth Fund 229,045
Lifeline Systems, Inc. Common Stock 1,433,511* 1,028,405*
Participant Loan Fund 365,662 295,447
PNC Bank Conduit Account 21,439
---------- ----------
$8,580,421 $6,223,466
========== ==========
</TABLE>
* Investment represents 5% or more of net assets available for plan
benefits.
Information provided by the custodian does not disclose the historical cost
of investments. This information required by the Department of Labor's
Rules and Regulations for Reporting and Disclosure under the Employee
Retirement Income Security Act of 1974 is not available and is not
disclosed.
Continued
12
<PAGE>
THE LIFELINE EMPLOYEES' SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS, CONTINUED
E. TAX STATUS:
----------
The Internal Revenue Service has determined and informed the Company by a
letter dated July 10, 1995 that the Plan and related trust are designed in
accordance with applicable sections of the Internal Revenue Code (IRC). The
Plan has been amended since receiving the determination letter. However,
the plan administrator and the Plan's tax counsel believe that the Plan is
designed and is currently being operated in compliance with the applicable
requirements of the IRC.
F. PLAN TERMINATION:
----------------
The Company intends to continue the Plan indefinitely but reserves the
right to terminate the Plan at any time without any liability whatsoever
for such discontinuance or termination. After payment of expenses by the
trustee, the Plan would be liquidated and each participant would receive
his or her interest in the form of a lump-sum payment.
13
<PAGE>
THE LIFELINE EMPLOYEES' SAVINGS AND INVESTMENT PLAN
SUPPLEMENTAL SCHEDULE
LINE 27A - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
December 31, 1997
<TABLE>
<CAPTION>
IDENTITY OF ISSUE, BORROWER, CURRENT
LESSOR OR SIMILAR PARTY DESCRIPTION OF INVESTMENT COST** VALUE
- - ---------------------------- ------------------------- ------ -------
<S> <C> <C> <C>
Lifeline Fixed Fund Bank Pooled Fund $1,192,549
Mutual Fund 358,802
SSGA Bond Market Fund Mutual Fund 53,403
SSGA S&P 500 Index Fund Mutual Fund 357,117
SSGA Matrix Equity Fund Mutual Fund 2,888,748
SSGA Small Cap Fund Mutual Fund 513,782
SSGA Active International Fund Mutual Fund 121,273
Life Solutions Income & Growth Fund Mutual Fund 359,837
Life Solutions Balanced Growth Fund Mutual Fund 706,692
Life Solutions Growth Fund Mutual Fund 229,045
*Lifeline Systems, Inc. Common Stock Shares of Common Stock 1,433,511
*Participant Loan Fund Participant Loans; rates
ranging from 10% to 10.25% 365,662
----------
$8,580,421
==========
</TABLE>
* Party-in-interest
** State Street Solutions does not maintain historical cost information
required by the Department of Labor's Rules and Regulations for reporting
and disclosure under the Employee Retirement Income Security Act of 1974.
Accordingly, for the purpose of this schedule, historical cost
information is not presented.
14
<PAGE>
THE LIFELINE EMPLOYEES' SAVINGS AND INVESTMENT PLAN
SUPPLEMENTAL SCHEDULE
LINE 27D - SCHEDULE OF REPORTABLE TRANSACTIONS
SERIES TRANSACTIONS IN EXCESS OF 5% OF THE CURRENT VALUE OF PLAN ASSETS
for the year ended December 31, 1997
Transactions in excess of 5% of the current value of plan assets as of the
beginning of the plan year are summarized as follows:
<TABLE>
<CAPTION>
PURCHASE SELLING COST OF NET GAIN
IDENTITY OF PARTY INVOLVED DESCRIPTION OF ASSET PRICE PRICE ASSETS* (LOSS)*
- - --------------------------- -------------------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
SSGA Matrix Equity Fund Mutual Fund $799,303
SSGA Small Cap Fund Mutual Fund $531,280
</TABLE>
* State Street Solutions does not maintain historical cost information
required by the Department of Labor's Rules and Regulations for
reporting and disclosure under the Employee Retirement Income Security
Act of 1974. Accordingly, for the purpose of this schedule, historical
cost information and the related net gain (loss) are not presented.
15
<PAGE>
Exhibit (99.1a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements of
Lifeline Systems, Inc. on Form S-8 (File Nos.33-40684, 33-58632, 33-79294, 33-
59499, 333-03949, 333-03953, 333-03951) of our report dated June 27, 1998, on
our audits of the financial statements of the Lifeline Employees' Savings and
Investment Plan as of December 31, 1997 and 1996 and for the years then ended,
which report is included in this Annual Report on Form 11-K.
/s/ PricewaterhouseCoopers, LLP
Boston, Massachusetts PricewaterhouseCoopers, LLP
August 5, 1998
