<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, 1998.
/ / 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
Incorporation or Organization) Identification No.)
111 LAWRENCE STREET, FRAMINGHAM, MASSACHUSETTS 01702
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (508) 988-1000
The sole purpose of this Form 10-K/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 June 29, 1999
<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>
(EXHIBIT (99.1))
PAGE 1
ANNUAL REPORT
Pursuant to Section 15(d) of the
Securities Act of 1934
For the Year Ended
December 31, 1998
----------
THE LIFELINE EMPLOYEES' SAVINGS AND INVESTMENT PLAN
---------------------------------------------------
<PAGE>
THE LIFELINE EMPLOYEES' SAVINGS AND INVESTMENT PLAN
FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULES
TO ACCOMPANY 1998 FORM 5500
ANNUAL REPORT OF EMPLOYEE BENEFIT PLAN
UNDER ERISA OF 1974
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<PAGE>
THE LIFELINE EMPLOYEES' SAVINGS AND INVESTMENT PLAN
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULES
for the years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C>
Report of Independent Accountants 2
Financial Statements:
Statements of Net Assets Available for Plan Benefits, with Fund Information,
December 31, 1998 and 1997 3-4
Statements of Changes in Net Assets Available for Plan Benefits, with Fund Information,
for the years ended December 31, 1998 and 1997 5-6
Notes to Financial Statements 7-13
Supplemental Schedules:
Line 27a - Schedule of Assets Held for Investment Purposes as of December 31, 1998 14
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, 1998 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.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Participants and Administrator of the
Lifeline Employees' Savings and Investment Plan:
In our opinion, the accompanying statements of net assets available for plan
benefits and the related statements of changes in net assets available for plan
benefits present fairly, in all material respects, the net assets available for
plan benefits of the Lifeline Employees' Savings and Investment Plan (the
"Plan") as of December 31, 1998 and 1997, and the changes in net assets
available for plan benefits for the year ended December 31, 1998, in conformity
with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
Our audits were conducted 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.
June 22, 1999 /s/ PricewaterhouseCoopers, LLP
2
<PAGE>
THE LIFELINE EMPLOYEES' SAVINGS AND INVESTMENT PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS, WITH FUND INFORMATION
December 31, 1998
<TABLE>
<CAPTION>
SSGA
SSGA S&P SSGA SSGA
Lifeline Bond 500 Matrix Small Scudder
Fixed Market Index Equity Cap International
ASSETS Fund Fund Fund Fund Fund Fund
-------- ------ ----- ------ ----- -------------
<S> <C> <C> <C> <C> <C> <C>
Investments, at fair value (Notes C and D):
Bank pooled fund $ 659,442
Shares of registered investment companies 778,252 $ 228,683 $ 860,319 $3,327,413 $ 762,230 $ 236,215
Lifeline Systems, Inc. stock
Participant loans receivable
---------- ---------- ---------- ---------- ---------- ----------
Total investments 1,437,694 228,683 860,319 3,327,413 762,230 236,215
Employer contributions receivable 2,653 968 3,995 3,885 4,315 1,428
Employee contributions receivable 6,867 3,315 10,872 11,163 13,982 3,865
---------- ---------- ---------- ---------- ---------- ----------
Total assets 1,447,214 232,966 875,186 3,342,461 780,527 241,508
---------- ---------- ---------- ---------- ---------- ----------
Net assets available for plan benefits $1,447,214 $ 232,966 $ 875,186 $3,342,461 $ 780,527 $ 241,508
========== ========== ========== ========== ========== ==========
<CAPTION>
Life Life
Solutions Solutions Life
Income & Balanced Solutions Lifeline
Growth Growth Growth Systems, Inc. Participant Total
ASSETS 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 $ 659,442
Shares of registered investment companies $ 442,577 $ 875,747 $ 474,387 7,985,823
Lifeline Systems, Inc. stock $1,860,216 1,860,216
Participant loans receivable $ 447,146 447,146
---------- ---------- ---------- ---------- ---------- -----------
Total investments 442,577 875,747 474,387 1,860,216 447,146 10,952,627
Employer contributions receivable 1,536 3,229 3,664 4,195 29,868
Employee contributions receivable 3,495 8,190 11,384 9,877 83,010
---------- ---------- ---------- ---------- ---------- -----------
Total assets 447,608 887,166 489,435 1,874,288 447,146 11,065,505
---------- ---------- ---------- ---------- ---------- -----------
Net assets available for plan benefits $ 447,608 $ 887,166 $ 489,435 $1,874,288 $ 447,146 $11,065,505
========== ========== ========== ========== ========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
LIFELINE EMPLOYEES' SAVINGS AND INVESTMENT PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS, WITH FUND INFORMATION
December 31, 1997
<TABLE>
<CAPTION>
SSGA
SSGA S&P SSGA SSGA SSGA
Lifeline Bond 500 Matrix Small Active
Fixed Market Index Equity Cap International
ASSETS 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
Income & Balanced Solutions Lifeline
Growth Growth Growth Systems, Inc. Participant Total
ASSETS 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.
4
<PAGE>
THE LIFELINE EMPLOYEES' SAVINGS AND INVESTMENT PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFIT, WITH FUND
INFORMATION
for the year ended December 31, 1998
<TABLE>
<CAPTION>
SSGA
SSGA S&P SSGA SSGA
Lifeline Bond 500 Matrix Small
Fixed Market Index Equity Cap
Fund Fund Fund Fund Fund
----------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Additions:
Employee contributions and rollovers $ 88,899 $144,283 $163,925 $ 246,805 $241,789
Employer contributions 30,876 10,395 48,889 46,732 59,429
Interest and dividend income 37 12,695 82,089 454,256 942
Net appreciation in fair value of investments 68,940 65,171 153,020
Interfund transfers 219,218 20,884 251,780 28,100 230,827
---------- -------- -------- ---------- --------
Total additions 407,970 188,257 611,854 928,913 532,987
Deductions:
Benefits and withdrawals 190,307 4,577 12,312 86,832 17,696
Net depreciation in fair value of investments 1,482 59,675
Administrative expenses 483 94 192 537 276
Interfund transfers 328,504 4,542 92,268 398,153 202,887
---------- -------- -------- ---------- --------
Total deductions 519,294 10,695 104,772 485,522 280,534
---------- -------- -------- ---------- --------
Net additions (deductions) (111,324) 177,562 507,082 443,391 252,453
Net assets available for plan benefits, beginning of year 1,558,538 55,404 368,104 2,899,070 528,074
---------- -------- -------- ---------- --------
Net assets available for plan benefits, end of year $1,447,214 $232,966 $875,186 $3,342,461 $780,527
========== ======== ======== ========== ========
<CAPTION>
Life Life
SSGA Solutions Solutions Life
Active Scudder Income & Balanced Solutions
International International Growth Growth Growth
Fund Fund Fund Fund Fund
------------- ------------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Additions:
Employee contributions and rollovers $ 30,752 $ 61,227 $ 59,711 $ 99,889 $ 152,785
Employer contributions 9,072 9,895 19,773 37,954 53,231
Interest and dividend income 23,769 36,768 85,567 45,799
Net appreciation in fair value of investments 19,820 5,969 7,611 3,312
Interfund transfers 18,440 187,697 80,333 51,417 82,320
------------ ------------ ---------- ---------- ---------
Total additions 78,084 282,588 202,554 282,438 337,447
Deductions:
Benefits and withdrawals 6,600 327 16,351 33,066 21,625
Net depreciation in fair value of investments 27,269
Administrative expenses 69 7 242 317 572
Interfund transfers 197,288 13,477 102,554 78,319 66,366
------------ ------------ ---------- ---------- ---------
Total deductions 203,957 41,080 119,147 111,702 88,563
------------ ------------ ---------- ---------- ---------
Net additions (deductions) (125,873) 241,508 83,407 170,736 248,884
Net assets available for plan benefits, beginning of year 125,873 364,201 716,430 240,551
------------ ------------ ---------- ---------- ---------
Net assets available for plan benefits, end of year - $ 241,508 $ 447,608 $ 887,166 $ 489,435
============ ============ ========== ========== =========
<CAPTION>
Lifeline
Systems, Inc. Participant Total
Common Stock Loan Fund Plan
------------ ----------- -----------
<S> <C> <C> <C>
Additions:
Employee contributions and rollovers $ 150,157 $ 1,440,247
Employer contributions 56,412 382,633
Interest and dividend income $ 26,819 768,741
Net appreciation in fair value of investments 44,813 368,656
Interfund transfers 340,921 266,259 1,778,196
----------- ----------- -----------
Total additions 592,303 293,078 4,738,473
Deductions:
Benefits and withdrawals 48,562 31,712 469,967
Net depreciation in fair value of investments 88,426
Administrative expenses 2,789
Interfund transfers 113,956 179,882 1,778,196
----------- ----------- -----------
Total deductions 162,518 211,594 2,339,378
----------- ----------- -----------
Net additions (deductions) 429,785 81,484 2,399,095
Net assets available for plan benefits, beginning of year 1,444,503 365,662 8,666,410
----------- ----------- -----------
Net assets available for plan benefits, end of year $ 1,874,288 $ 447,146 $11,065,505
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
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
SSGA
SSGA S&P SSGA SSGA SSGA
Lifeline Bond 500 Matrix Small Active
Fixed Market Index Equity Cap International
Fund Fund Fund Fund Fund Fund
----------- -------- --------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Additions:
Employee contributions and rollovers $ 79,537 $24,877 $132,534 $ 115,360 $155,723 $ 61,672
Employer contributions 26,924 7,111 37,789 33,481 43,427 16,572
Interest and dividend income 1,803 14,529 487,702 33,254 7,471
Net appreciation in fair value 97,153 811 17,476 197,813 2,209
of investments
Interfund transfers 1,748,902 26,898 172,798 2,281,648 304,892 74,471
---------- ------- -------- ---------- -------- --------
Total additions 1,952,516 61,500 375,126 3,116,004 539,505 160,186
Deductions:
Benefits and withdrawals 254,848 5,879 3,444 86,517 3,194 7,258
Net depreciation in fair value
of investments 24,319
Administrative expenses 255 23 139 257 55 19
Interfund transfers 138,875 194 3,439 130,160 8,182 2,717
---------- ------- -------- ---------- -------- --------
Total deductions 393,978 6,096 7,022 216,934 11,431 34,313
---------- ------- -------- ---------- -------- --------
Net additions (deductions) 1,558,538 55,404 368,104 2,899,070 528,074 125,873
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 $125,873
========== ======= ======== ========== ======== ========
<CAPTION>
Life Life
Solutions Solutions Life
Income & Balanced Solutions Lifeline
Growth Growth Growth Systems, Inc. Participant
Fund Fund Fund Common Stock Loan Fund
--------- --------- ------------ ------------- ---------
<S> <C> <C> <C> <C> <C>
Additions:
Employee contributions and rollovers $ 54,118 $101,867 $150,033 $ 161,523
Employer contributions 17,231 35,729 46,812 49,245
Interest and dividend income 19,237 52,747 21,311 37 $ 22,642
Net appreciation in fair value 25,298 67,226 434,470
of investments
Interfund transfers 350,558 737,625 46,145 63,755 205,054
--------- --------- --------- ---------- --------
Total additions 466,442 995,194 264,301 709,030 227,696
Deductions:
Benefits and withdrawals 10,250 73,583 3,532 40,810 12,806
Net depreciation in fair value
of investments 10,057
Administrative expenses 110 283 152 108
Interfund transfers 91,881 204,898 10,009 309,669 144,675
--------- --------- --------- ---------- --------
Total deductions 102,241 278,764 23,750 350,587 157,481
--------- --------- --------- ---------- --------
Net additions (deductions) 364,201 716,430 240,551 358,443 70,215
Net assets available for plan benefits,
beginning of year 1,086,060 295,447
--------- --------- --------- ---------- --------
Net assets available for plan benefits,
end of year $364,201 $716,430 $240,551 $1,444,503 $365,662
========= ========= ========= ========== ========
<CAPTION>
Fidelity Fidelity
Fidelity Asset Blue Chip
Income Balanced Allocation Growth Total
Fund Fund Fund Fund Plan
---------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Additions:
Employee contributions and rollovers $1,037,244
Employer contributions 314,321
Interest and dividend income 660,733
Net appreciation in fair value 842,456
of investments
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 $ 1,725,256 $ 740,541 $ 332,517 $ 2,169,733 6,012,746
----------- --------- ---------- ----------- ----------
Total deductions 1,725,256 740,541 332,517 2,169,733 6,550,644
----------- --------- ---------- ----------- ----------
Net additions (deductions) (1,725,256) (740,541) (332,517) (2,169,733) 2,316,856
Net assets available for plan benefits,
beginning of year 1,725,256 740,541 332,517 2,169,733 6,349,554
----------- --------- ---------- ----------- ----------
Net assets available for plan benefits,
end of year - - - - $8,666,410
=========== ========= ========== =========== ==========
</TABLE>
The accompanying notes are an integral of the financial statements.
6
<PAGE>
LIFELINE SYSTEMS, INC. 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
United States 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).
The Plan was amended in December 1998 to qualify employees who
transferred employment to the Company as of November 13, 1998 in
connection with the Company's acquisition of AlertCall, Inc. as
participants in the Plan effective January 1, 1999.
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 Board of Directors of the Company pursuant to
the provisions of the Plan. For the year ended December 31, 1998 and
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 per participant. The Board of Directors has the discretion to
make additional contributions.
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 9.25% to 10.00%
in 1998 and 10.00% to 10.25% in 1997.
7
<PAGE>
LIFELINE SYSTEMS, INC. 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 1998 or 1997.
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:
(i) 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.
(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.
. 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
8
<PAGE>
LIFELINE SYSTEMS, INC. EMPLOYEES' SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS, CONTINUED
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).
This fund was terminated on July 1, 1998 and replaced by the
Scudder International Fund.
. Scudder International Fund - This fund seeks long-term growth of
capital through a diversified portfolio of foreign equity
securities. The fund invests primarily in foreign companies with
strong earnings growth and attractively priced shares. It broadly
diversifies assets in many companies, across a wide range of
economic sectors, typically in 20 or more different countries.
. 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 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.
. 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.
9
<PAGE>
LIFELINE SYSTEMS, INC. EMPLOYEES' SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS, CONTINUED
. Lifeline Systems, Inc. Common Stock - The Plan's trustee
purchases the stock of the Company on the open market.
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.
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 participants of 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.
10
<PAGE>
LIFELINE SYSTEMS, INC. EMPLOYEES' SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS, CONTINUED
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 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.
11
<PAGE>
LIFELINE SYSTEMS, INC. EMPLOYEES' SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS, CONTINUED
D. Investments:
-----------
Investments held by the Plan at December 31, 1998 and 1997 are summarized
as follows:
<TABLE>
<CAPTION>
1998 1997
Fair Fair
Description Value Value
----------- ----- -----
<S> <C> <C>
Lifeline Fixed Fund $ 1,437,694 * $1,551,351 *
SSGA Bond Market Fund 228,683 53,403
SSGA S&P 500 Index Fund 860,319 * 357,117
SSGA Matrix Equity Fund 3,327,413 * 2,888,748 *
SSGA Small Cap Fund 762,230 * 513,782 *
SSGA Active International Fund - 121,273
Scudder International Fund 236,215 -
Life Solutions Income & Growth Fund 442,577 359,837
Life Solutions Balanced Growth Fund 875,747 * 706,692 *
Life Solutions Growth Fund 474,387 229,045
Lifeline Company Stock 1,860,216 * 1,433,511 *
Participant Loan Fund 447,146 365,662
----------- ----------
$10,952,627 $8,580,421
=========== ==========
</TABLE>
* Investment represents 5% or more of net assets available for plan
benefits.
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.
12
<PAGE>
LIFELINE SYSTEMS, INC. EMPLOYEES' SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS, CONTINUED
G. Related Party Transactions:
--------------------------
State Street Solutions is the Custodian for the Plan. The Plan invests in
mutual funds managed by State Street Global Advisors, a related entity to
the Custodian. Therefore, State Street Solutions is a party-in-interest. In
addition, purchases and sales of the Company's common shares and
participant loans are considered party-in-interest transactions.
13
<PAGE>
LIFELINE SYSTEMS, INC. EMPLOYEES' SAVINGS AND INVESTMENT PLAN
SUPPLEMENTAL SCHEDULE
LINE 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
December 31, 1998
<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 $1,333,234 $ 1,437,694
* SSGA Bond Market Fund Mutual Fund 229,876 228,683
* SSGA S&P 500 Index Fund Mutual Fund 784,472 860,319
* SSGA Matrix Equity Fund Mutual Fund 3,065,103 3,327,413
* SSGA Small Cap Fund Mutual Fund 813,060 762,230
Scudder International Fund Mutual Fund 262,459 236,215
* Life Solutions Income & Growth Fund Mutual Fund 423,821 442,577
* Life Solutions Balanced Growth Fund Mutual Fund 840,737 875,747
* Life Solutions Growth Fund Mutual Fund 483,232 474,387
* Lifeline Systems, Inc. Common Stock Shares of Common Stock 1,027,103 1,860,216
* Participant Loan Fund Participant Loans; rates
ranging from 9.25% to 10.00% 447,146 447,146
---------- -----------
$9,710,243 $10,952,627
========== ===========
* Party-in-interest
</TABLE>
14
<PAGE>
LIFELINE SYSTEMS, INC. EMPLOYEES' SAVINGS AND INVESTMENT PLAN
SUPPLEMENT 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, 1998
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 Cost of Value of Net Gain
Identity of Party Involved Price Assets Assets (Loss)
- -------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
SSGA S&P 500 Index Fund $554,025 $109,696 $115,995 $ 6,299
SSGA Matrix Equity Fund 835,865 489,465 550,166 60,701
SSGA Small Cap Fund 544,023 244,436 235,899 (8,537)
Lifeline Company Stock 579,113 158,987 198,218 39,231
</TABLE>
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 22, 1999, on
our audits of the financial statements of the Lifeline Employees' Savings and
Investment Plan as of December 31, 1998 and 1997 and for the years then ended,
which report is included in this Annual Report on Form 11-K.
/s/ PricewaterhouseCoopers, LLP
PricewaterhouseCoopers, LLP
Boston, Massachusetts
June 29, 1999
