<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 11-K
ANNUAL REPORT
PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM _________ TO __________.
COMMISSION FILE NUMBER 0-20083
-------------------
A. Full title of the plan and the address of the plan, if different from
that of the issuer named below:
SPACELABS MEDICAL, INC.
INCENTIVE SAVINGS AND STOCK OWNERSHIP PLAN
B. Name of the issuer of the securities held pursuant to the plan and the
address of its principal executive office:
SPACELABS MEDICAL, INC.
15220 N.E. 40TH STREET
P.O. BOX 97013
REDMOND, WASHINGTON 98073-9713
================================================================================
<PAGE> 2
SPACELABS MEDICAL, INC.
INCENTIVE SAVINGS AND
STOCK OWNERSHIP PLAN
Financial Statements and Schedules
December 31, 1997 and 1996
(With Independent Auditors' Report Thereon)
<PAGE> 3
SPACELABS MEDICAL, INC.
INCENTIVE SAVINGS AND STOCK OWNERSHIP PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report 1
Statements of Assets Available for Plan Benefits, December 31, 1997 and 1996 2
Statements of Changes in Assets Available for Plan Benefits, Years ended
December 31, 1997 and 1996 3
Notes to Financial Statements, December 31, 1997 and 1996 4-12
Schedule 1 -- Line 27(a) -- Schedule of Assets Held for Investment Purposes,
December 31, 1997 13
Schedule 2 -- Line 27(d) -- Schedule of Reportable Transactions, Year ended
December 31, 1997 14
</TABLE>
<PAGE> 4
INDEPENDENT AUDITORS' REPORT
The Benefits Committee
Spacelabs Medical, Inc.
Incentive Savings and Stock Ownership Plan:
We have audited the accompanying statements of assets available for plan
benefits of Spacelabs Medical, Inc. Incentive Savings and Stock Ownership Plan
(Plan) as of December 31, 1997 and 1996 and the related statements of changes in
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 assets available for plan benefits of the Plan as of
December 31, 1997 and 1996, and the changes in assets available for plan
benefits for the years then ended in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplementary Schedules 1 and 2 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 supplemental schedules
have been subjected to the auditing procedures applied in the audit 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.
KPMG Peat Marwick LLP
Seattle, Washington
May 29, 1998
1
<PAGE> 5
SPACELABS MEDICAL, INC.
INCENTIVE SAVINGS AND STOCK OWNERSHIP PLAN
Statement of Assets Available for Plan Benefits
December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Investments, at fair value (note 5)
Cash and cash equivalents $ 103,100 8,030
Mutual funds 20,757,602 18,175,603
Common stocks 4,213,495 4,470,799
Insurance contracts -- 769,160
----------- -----------
Total investments 25,074,197 23,423,592
Receivables:
Employees' contributions 219,132 148,525
Employer's contributions 115,076 50,862
----------- -----------
Assets available for plan benefits (note 4) $25,408,405 23,622,979
=========== ===========
</TABLE>
See accompanying notes to financial statements.
2
<PAGE> 6
SPACELABS MEDICAL, INC.
INCENTIVE SAVINGS AND STOCK OWNERSHIP PLAN
Statement of Changes in Assets Available for Plan Benefits
Years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Investment income:
Interest and dividends $ 1,925,735 1,301,518
Net appreciation in fair value of investments (note 5) 1,881,284 27,925
------------ ------------
Net investment income 3,807,019 1,329,443
------------ ------------
Contributions (note 1):
Employees 2,356,197 2,365,648
Employer 658,040 801,202
------------ ------------
Total contributions 3,014,237 3,166,850
------------ ------------
Total additions 6,821,256 4,496,293
Benefits paid to participants (5,035,830) (4,249,763)
------------ ------------
Increase in assets available for plan benefits 1,785,426 246,530
Assets available for plan benefits at beginning of year 23,622,979 23,376,449
------------ ------------
Assets available for plan benefits at end of year $ 25,408,405 23,622,979
============ ============
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 7
SPACELABS MEDICAL, INC.
INCENTIVE SAVINGS AND STOCK OWNERSHIP PLAN
Notes to Financial Statements
December 31, 1997 and 1996
(1) PLAN DESCRIPTION
The following description of the Spacelabs Medical, Inc. Incentive Savings
and Stock Ownership Plan (Plan) provides only general information and does
not serve as the basis for any rights or benefits under the Plan.
Participants should refer to the Plan document for a more complete
description of the Plan and benefit information.
GENERAL
The Plan is a defined contribution plan covering the majority of the
full-time U.S. resident employees of Spacelabs Medical, Inc. (Sponsor or
Company) who have one year of service and certain part-time employees who
have completed one year of service and have worked 1,000 hours. Effective
January 1, 1998, the Plan was amended to provide eligible employees the
opportunity to make participant contributions to the Plan upon completion
of a sixty-day service period. The Plan is subject to the provisions of
the Employee Retirement Income Security Act of 1974 (ERISA).
ADMINISTRATION
The plan administrator is the Sponsor, which appointed a Benefits
Committee to administer the Plan.
During 1996, the Plan's investments were held by Wachovia Employee Benefit
Trust Services. Effective January 1, 1997, the Plan's investments are held
by U. S. Bank of Washington NA Trust and Investment Management Division
(Trustee).
CONTRIBUTIONS
Participants may elect to contribute from 2% to 16% of compensation, as
defined, to the Plan subject to a pretax limit of $9,500 in 1997 and 1996.
Contributions and earnings are credited to separate accounts maintained
for each participant. Employer matching contributions are made by the
Sponsor at 50% of before- and after-tax contributions up to 6% of
earnings. For purposes of the Plan financial statements "employer's
contributions" consist of the employer matching contributions and
"employees' contributions" consist of before- and after-tax contributions
and rollover contributions.
All employer matching contributions are made directly in the Company's
common stock and invested in the Company Stock Fund for the benefit of the
participants unless the participants are 55 years of age or older, at
which time participants may elect to have employer matching contributions
allocated in the same manner as their contributions. Employer stock
contributions were valued at $608,847 and $722,377 in 1997 and 1996,
respectively. Forfeitures of employer matching contributions are used to
reduce future employer contributions.
The Plan offers the following investment options: The Fixed Income Fund,
the Balanced Fund, the Diversified Equity Fund, the Global Fund, the
Aggressive Growth Fund, and the Company Stock Fund. The ATL Stock Fund is
not available for new contributions.
4
<PAGE> 8
SPACELABS MEDICAL, INC.
INCENTIVE SAVINGS AND STOCK OWNERSHIP PLAN
Notes to Financial Statements, Continued
The Fixed Income Fund is a portfolio of guaranteed investment contracts
plus the Invesco Collective Trust IRT Stable Value Fund, a collective
investment fund investing primarily in guaranteed investment contracts and
other similar instruments to achieve high current income and stability of
principal. The Balanced Fund invests in the Dodge & Cox Balanced Fund
which holds equity and fixed income securities seeking reasonable income,
long-term capital growth and conservation of capital. The Diversified
Equity Fund is a portfolio of large capitalization common stock
investments managed by the Vanguard Group and held in the Vanguard Group
Windsor II Fund. The Global Fund invests primarily in equity securities on
a worldwide basis and seeks long-term capital growth through the Scudder
Global Fund. The Aggressive Growth Fund seeks long-term capital
appreciation through the Alger Retirement Funds Small Cap Retirement
Portfolio by investing in equity securities of companies with total market
capitalization of less than $1 billion. The Company Stock Fund is a
portfolio of common stock of the Sponsor. The ATL Stock Fund is a
portfolio of common stock of ATL Ultrasound, Inc.
PARTICIPANT ACCOUNTS
Each participant's account is credited with the participant's
contributions, the participant's share of the Company's contributions, and
an allocation of Plan earnings. Allocations are based on participant
earnings or account balances, as defined. The benefit to which a
participant is entitled is the vested balance of the participant's
account.
The current value of each participant's account is determined based on the
carrying values of the funds and is computed monthly.
PAYMENT OF BENEFITS
Participants are eligible to receive distributions, to the extent vested,
upon retirement, upon becoming disabled, upon termination of employment,
or upon request for withdrawal prior to termination subject to certain
restrictions. A participant's beneficiary is eligible to receive a
distribution of the balance of the participant's account upon the death of
the participant.
Distributions are made in cash or, if a participant elects, in the form of
Company and/or ATL Ultrasound, Inc. common shares plus cash for any
fractional share.
VESTING
Participants are fully vested at all times in their contributions and
earnings thereon. Participants vest in employer matching contributions and
earnings thereon as follows:
<TABLE>
<CAPTION>
PERCENT
YEARS OF SERVICE VESTED
---------------- ------
<S> <C>
After one year 20%
After two years 40
After three years 60
After four years 80
After five years 100
</TABLE>
5
<PAGE> 9
SPACELABS MEDICAL, INC.
INCENTIVE SAVINGS AND STOCK OWNERSHIP PLAN
Notes to Financial Statements, Continued
Participants become immediately vested in employer matching contributions
upon termination of employment due to retirement, death or total and
permanent disability.
At December 31, 1997 and 1996 forfeited nonvested accounts totaled $14,393
and $13,689, respectively. These accounts will be used to reduce future
employer contributions. Also, in 1997 and 1996, employer contributions
were reduced by $44,736 and $20,858, respectively, from forfeited
nonvested accounts.
TERMINATION
Although it has not expressed any intent to do so, the Sponsor has the
right under the Plan to discontinue its contributions at any time and to
terminate the Plan subject to the provisions of ERISA. In the event of
Plan termination, participants will become fully vested.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements have been prepared on the accrual
basis of accounting.
VALUATION OF INVESTMENTS
Investments of the Plan with quoted market prices are stated at fair
value, as determined by closing market prices for securities. The Plan's
contract with an insurance company was valued at fair value, which
approximates contract value, by discounting the related cash flows based
on current yields of similar instruments with comparable durations.
Purchases and sales are recorded on a trade-date basis.
Net appreciation in the fair value of investments consists of the realized
gains or losses and the unrealized appreciation (depreciation) on those
investments.
CASH AND CASH EQUIVALENTS
The Plan considers all highly liquid investments with a maturity of three
months or less at the date of purchase to be cash equivalents.
EXPENSES
Administrative expenses of the Plan are paid by the Sponsor.
BENEFITS
Benefits are reported when paid.
6
<PAGE> 10
SPACELABS MEDICAL, INC.
INCENTIVE SAVINGS AND STOCK OWNERSHIP PLAN
Notes to Financial Statements, Continued
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires the plan administrator to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of changes in
net assets during the reporting period. Actual results could differ from
those estimates.
(3) TAX STATUS
The Internal Revenue Service has determined and informed the Company by a
letter dated August 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 Sponsor believes that the Plan is designed and is currently
being operated in compliance with the applicable requirements of the IRC.
(4) RECONCILIATION TO FORM 5500
Net assets reported in accordance with IRS Form 5500 differ from the
financial statements in that the Form 5500 includes a liability
attributable to withdrawing participants for benefit claims that have been
processed and approved for payment prior to December 31, but not yet paid
as of that date in the amounts of $385,475 and $739,231 at December 31,
1997 and 1996, respectively. Changes in net assets in the Form 5500 differ
from the financial statements by an amount equal to the change in the
liability for such participants from the beginning of the year to the end.
Such difference was a decrease in the liability of $353,756 in 1997 and an
increase in the liability of $538,680 in 1996.
7
<PAGE> 11
SPACELABS MEDICAL, INC.
INCENTIVE SAVINGS AND STOCK OWNERSHIP PLAN
Notes to Financial Statements, Continued
(5) INVESTMENTS
The following table presents the assets held for investment purposes at
December 31:
<TABLE>
<CAPTION>
1997 1996
-------------------------------- --------------------------------
PRINCIPAL PRINCIPAL
AMOUNT OR AMOUNT OR
NUMBER INVESTMENT NUMBER INVESTMENT
OF SHARES VALUE OF SHARES VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash and cash equivalents:
Wachovia Bank DTF Short-Term -- $ -- 8,030 $ 8,030
Investment Fund
First American Funds Inc. Prime
Obligations Money Market Fund
103,100 103,100 -- --
----------- ----------- ----------- -----------
Total cash and cash equivalents 103,100 103,100 8,030 8,030
Mutual funds:
Alger Retirement Funds Small Cap 141,820 2,511,628 141,098 2,584,907
Retirement Portfolio
Dodge & Cox Funds Balanced Fund 13,438 897,375 9,761 583,932
Invesco Collective Trust IRT Stable 5,504,789 5,504,789 5,017,564 5,017,564
Value Fund
Scudder Funds Global Fund 77,789 2,199,860 66,109 1,903,946
Vanguard Group Windsor II Fund 336,965 9,643,950 339,289 8,085,254
----------- ----------- ----------- -----------
Total mutual funds 6,074,801 20,757,602 5,573,821 18,175,603
Common stock:
Spacelabs Medical, Inc. 167,955 3,191,145 177,570 3,640,185
ATL Ultrasound, Inc. 22,225 1,022,350 26,794 830,614
----------- ----------- ----------- -----------
Total common stock 190,180 4,213,495 204,364 4,470,799
----------- ----------- ----------- -----------
Insurance contracts:
Principal Mutual Life Insurance
Company, Guaranteed Investment
Contract Policy No. 4-7799, 4.85%,
1/2 due July 1, 1996 and the -- -- 769,160 769,160
remainder due January 1, 1997
----------- ----------- ----------- -----------
Total insurance contracts -- -- 769,160 769,160
=========== ----------- =========== -----------
Total investments $25,074,197 $23,423,592
=========== ===========
</TABLE>
During the years ended December 31, 1997 and 1996, the Plan's
investments appreciated (depreciated) in value as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Mutual funds $ 1,755,443 $ 1,303,852
Common stock 125,841 (1,275,927)
----------- -----------
$ 1,881,284 $ 27,925
=========== ===========
</TABLE>
8
<PAGE> 12
SPACELABS MEDICAL, INC.
INCENTIVE SAVINGS AND STOCK OWNERSHIP PLAN
Notes to Financial Statements, Continued
(6) ASSETS BY FUND
Assets available for plan benefits at December 31, 1997 and 1996 are
allocated by fund as follows:
<TABLE>
<CAPTION>
FIXED DIVERSIFIED
1997 INCOME FUND BALANCED FUND EQUITY FUND GLOBAL FUND
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Investments, at fair value:
Cash and cash equivalents $ 3,236 284 8,669 774
Mutual funds 5,504,789 897,375 9,643,950 2,199,860
Common stocks -- -- -- --
------------ ------------ ------------ ------------
5,508,025 897,659 9,652,619 2,200,634
Receivables:
Employees' contribution 25,748 20,227 69,382 38,683
Employer's contributions -- -- -- --
------------ ------------ ------------ ------------
Assets available for plan benefits $ 5,533,773 917,886 9,722,001 2,239,317
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
AGGRESSIVE COMPANY ATL
1997 GROWTH FUND STOCK FUND STOCK FUND TOTAL
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Investments, at fair value:
Cash and cash equivalents 405 83,902 5,830 103,100
Mutual funds 2,511,628 -- -- 20,757,602
Common stocks -- 3,191,145 1,022,350 4,213,495
------------ ------------ ------------ ------------
2,512,033 3,275,047 1,028,180 25,074,197
Receivables:
Employees' contribution 44,847 20,245 -- 219,132
Employer's contributions -- 115,076 -- 115,076
------------ ------------ ------------ ------------
Assets available for plan benefits 2,556,880 3,410,368 1,028,180 25,408,405
============ ============ ============ ============
</TABLE>
9
<PAGE> 13
SPACELABS MEDICAL, INC.
INCENTIVE SAVINGS AND STOCK OWNERSHIP PLAN
Notes to Financial Statements, Continued
<TABLE>
<CAPTION>
FIXED DIVERSIFIED
1996 INCOME FUND BALANCED FUND EQUITY FUND GLOBAL FUND
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Investments, at fair value:
Cash and cash equivalents $ 15 6 31 --
Mutual funds 5,017,564 583,932 8,085,254 1,903,946
Common stocks -- -- -- --
Insurance contracts 769,160 -- -- --
------------ ------------ ------------ ------------
5,786,739 583,938 8,085,285 1,903,946
Receivables:
Employees' contribution 24,527 10,857 44,404 23,829
Employer's contributions -- -- -- --
------------ ------------ ------------ ------------
Assets available for plan benefits $ 5,811,266 594,795 8,129,689 1,927,775
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
AGGRESSIVE COMPANY ATL
1996 GROWTH FUND STOCK FUND STOCK FUND TOTAL
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Investments, at fair value:
Cash and cash equivalents 6 7,931 41 8,030
Mutual funds 2,584,907 -- -- 18,175,603
Common stocks -- 3,640,185 830,614 4,470,799
Insurance contracts -- -- -- 769,160
------------ ------------ ------------ ------------
2,584,913 3,648,116 830,655 23,423,592
Receivables:
Employees' contribution 34,025 10,883 -- 148,525
Employer's contributions -- 50,862 -- 50,862
------------ ------------ ------------ ------------
Assets available for plan benefits 2,618,938 3,709,861 830,655 23,622,979
============ ============ ============ ============
</TABLE>
10
<PAGE> 14
SPACELABS MEDICAL, INC.
INCENTIVE SAVINGS AND STOCK OWNERSHIP PLAN
Notes to Financial Statements, Continued
(7) CHANGES IN ASSETS BY FUND
Changes in assets available for plan benefits for the years ended
December 31, 1997 and 1996 are allocated as follows:
<TABLE>
<CAPTION>
FIXED DIVERSIFIED
1997 INCOME FUND BALANCED FUND EQUITY FUND GLOBAL FUND
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Investment income:
Interest and dividends $ 330,026 67,308 793,754 355,985
Net appreciation (depreciation) in fair
value of investments -- 73,610 1,742,689 (13,233)
------------ ------------ ------------ ------------
Net investment income (loss) 330,026 140,918 2,536,443 342,752
Contributions 332,064 229,954 774,958 399,767
------------ ------------ ------------ ------------
Net additions 662,090 370,872 3,311,401 742,519
Benefits paid to participants (1,066,083) (98,562) (1,710,099) (459,612)
Interfund transfers 126,500 50,781 (8,990) 28,635
------------ ------------ ------------ ------------
Increase (decrease) in fund
balances (277,493) 323,091 1,592,312 311,542
Assets available for plan benefits at
beginning of year 5,811,266 594,795 8,129,689 1,927,775
------------ ------------ ------------ ------------
Assets available for plan benefits at end of
year $ 5,533,773 917,886 9,722,001 2,239,317
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
AGGRESSIVE COMPANY ATL
1997 GROWTH FUND STOCK FUND STOCK FUND TOTAL
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Investment income:
Interest and dividends 376,245 2,199 218 1,925,735
Net appreciation (depreciation) in fair
value of investments (47,624) (235,976) 361,818 1,881,284
------------ ------------ ------------ ------------
Net investment income (loss) 328,621 (233,777) 362,036 3,807,019
Contributions 538,280 739,214 -- 3,014,237
------------ ------------ ------------ ------------
Net additions 866,901 505,437 362,036 6,821,256
Benefits paid to participants (775,870) (765,519) (160,085) (5,035,830)
Interfund transfers (153,089) (39,411) (4,426) --
------------ ------------ ------------ ------------
Increase (decrease) in fund
balances (62,058) (299,493) 197,525 1,785,426
Assets available for plan benefits at
beginning of year 2,618,938 3,709,861 830,655 23,622,979
------------ ------------ ------------ ------------
Assets available for plan benefits at end of
year 2,556,880 3,410,368 1,028,180 25,408,405
============ ============ ============ ============
</TABLE>
11
<PAGE> 15
SPACELABS MEDICAL, INC.
INCENTIVE SAVINGS AND STOCK OWNERSHIP PLAN
Notes to Financial Statements, Continued
<TABLE>
<CAPTION>
FIXED DIVERSIFIED
1996 INCOME FUND BALANCED FUND EQUITY FUND GLOBAL FUND
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Investment income:
Interest and dividends $ 360,043 22,786 580,495 119,691
Net appreciation (depreciation) in fair
value of investments -- 38,577 1,065,457 118,695
------------ ------------ ------------ ------------
Net investment income (loss) 360,043 61,363 1,645,952 238,386
Contributions 466,967 172,380 779,160 375,000
------------ ------------ ------------ ------------
Net additions (deductions) 827,010 233,743 2,425,112 613,386
Benefits paid to participants (1,265,206) (68,638) (1,381,354) (417,261)
Interfund transfers (218,443) (63,454) 199,013 (40,610)
------------ ------------ ------------ ------------
Increase (decrease) in fund (656,639) 101,651 1,242,771 155,515
balances
Assets available for plan benefits at
beginning of year 6,467,905 493,144 6,886,918 1,772,260
------------ ------------ ------------ ------------
Assets available for plan benefits at end of
year $ 5,811,266 594,795 8,129,689 1,927,775
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
AGGRESSIVE COMPANY ATL
1996 GROWTH FUND STOCK FUND STOCK FUND TOTAL
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Investment income:
Interest and dividends 217,750 662 91 1,301,518
Net appreciation (depreciation) in fair
value of investments 81,122 (1,476,122) 200,196 27,925
------------ ------------ ------------ ------------
Net investment income (loss) 298,872 (1,475,460) 200,287 1,329,443
Contributions 540,872 832,471 -- 3,166,850
------------ ------------ ------------ ------------
Net additions (deductions) 839,744 (642,989) 200,287 4,496,293
Benefits paid to participants (247,054) (737,112) (133,138) (4,249,763)
Interfund transfers 161,589 (26,211) (11,884) --
------------ ------------ ------------ ------------
Increase (decrease) in fund 754,279 (1,406,312) 55,265 246,530
balances
Assets available for plan benefits at
beginning of year 1,864,659 5,116,173 775,390 23,376,449
------------ ------------ ------------ ------------
Assets available for plan benefits at end of
year 2,618,938 3,709,861 830,655 23,622,979
============ ============ ============ ============
</TABLE>
12
<PAGE> 16
SPACELABS MEDICAL, INC.
INCENTIVE SAVINGS AND STOCK OWNERSHIP PLAN
Line 27(a)--Schedule of Assets Held for Investment Purposes
December 31, 1997
<TABLE>
<CAPTION>
DESCRIPTION OF INVESTMENT, INCLUDING
IDENTITY OF ISSUER, BORROWER, LESSOR, MATURITY DATE, RATE OF INTEREST,
OR SIMILAR PARTY COLLATERAL, PAR OR MATURITY VALUE SHARES COST CURRENT VALUE
- ------------------------------------- ------------------------------------ -------------- ------------ -------------
<S> <C> <C> <C> <C>
Cash and cash equivalents:
First American Funds Inc. Prime Obligations Money Market Fund 103,100 $ 103,100 103,100
Mutual funds:
Alger Retirement Funds Small Cap Retirement Portfolio 141,820 2,160,083 2,511,628
Dodge & Cox Funds Balanced Fund 13,438 837,173 897,375
Invesco Collective Trust IRT Stable Value Fund 5,504,789 5,504,789 5,504,789
Vanguard Group Windsor II Fund 336,965 6,208,995 9,643,950
Scudder Funds Global Stock Fund 77,789 2,081,764 2,199,860
Common stock:
*Spacelabs Medical, Inc. Common stock 167,955 3,683,169 3,191,145
ATL Ultrasound, Inc. Common stock 22,225 327,515 1,022,350
</TABLE>
*Spacelabs Medical, Inc., the Plan Sponsor, is a party in interest as defined by
section 3(14) of ERISA.
13
<PAGE> 17
SCHEDULE 2
SPACELABS MEDICAL, INC.
INCENTIVE SAVINGS AND STOCK OWNERSHIP PLAN
Line 27(d)--Schedule of Reportable Transactions(1)
Year ended December 31, 1997
<TABLE>
<CAPTION>
IDENTITY OF PARTY INVOLVED DESCRIPTION OF ASSET PURCHASE PRICE SELLING PRICE
- --------------------------- ----------------------------------- -------------- -------------
<S> <C> <C> <C>
Qualivest Money Market Fund Short-term Investment Fund $7,849,399 --
Qualivest Money Market Fund Short-term Investment Fund -- 7,849,799
First American Funds Inc. Prime Obligations Money Market Fund 1,186,595 --
First American Funds Inc. Prime Obligations Money Market Fund -- 1,083,589
Alger Retirement Funds Small Cap Retirement Portfolio 893,847 --
Alger Retirement Funds Small Cap Retirement Portfolio -- 919,502
Invesco Collective Trust IRT Stable Value Fund 1,718,020 --
Invesco Collective Trust IRT Stable Value Fund -- 1,230,795
Vanguard Group Windsor II Fund 1,675,582 --
Vanguard Group Windsor II Fund -- 1,859,574
Scudder Funds Global Stock Fund 744,553 --
Scudder Funds Global Stock Fund -- 435,406
</TABLE>
<TABLE>
<CAPTION>
CURRENT VALUE
OF ASSETS ON
IDENTITY OF PARTY INVOLVED COST OF ASSET TRANSACTION DATE NET GAIN
- --------------------------- ------------- ---------------- ----------
<S> <C> <C> <C>
Qualivest Money Market Fund 7,849,399 7,849,399 --
Qualivest Money Market Fund 7,849,799 7,849,799 --
First American Funds Inc. 1,186,595 1,186,595 --
First American Funds Inc. 1,083,589 1,083,589 --
Alger Retirement Funds 893,847 893,847 --
Alger Retirement Funds 772,257 919,502 147,245
Invesco Collective Trust 1,718,020 1,718,020 --
Invesco Collective Trust 1,230,795 1,230,795 --
Vanguard Group 1,675,582 1,675,582 --
Vanguard Group 1,157,980 1,859,574 701,594
Scudder Funds 744,553 744,553 --
Scudder Funds 345,199 435,406 90,207
</TABLE>
(1) Reportable transactions as defined in the Department of Labor's
reporting regulations consist of (a) a single transaction in excess of
5% of the current value of Plan assets, (b) a series of transactions
with or in conjunction with the same person, involving property other
than securities, which amount in the aggregate to more than 5% of the
current value of Plan assets, (c) a series of transactions with respect
to securities of the same issue which amount in the aggregate to more
than 5% of the current value of total Plan assets, and (d) any
transactions with respect to securities with or in conjunction with a
person if a prior or subsequent single transaction has occurred with
respect to securities with or in conjunction with that same person in an
amount in excess of 5% of the current value of Plan assets. The current
value of Plan assets, to apply the definition of reportable
transactions, is determined at the beginning of the Plan year.
14
<PAGE> 18
SIGNATURES
The Plan. Pursuant to the requirements of the Securities Exchange Act of 1934,
the Benefits Committee has duly caused this annual report to be signed on its
behalf by the undersigned hereunto duly authorized.
Spacelabs Medical, Inc.
Incentive Savings and
Stock Ownership Plan
Date: June 26, 1997 By: /s/ James A. Richman
---------------------------- --------------------------
James A. Richman
Vice President and
Corporate Controller
<PAGE> 19
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
----------- ----------- ----
<S> <C> <C>
23.1 Consent of KPMG Peat Marwick LLP
</TABLE>
<PAGE> 1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board Of Directors
Spacelabs Medical, Inc.:
We consent to incorporation by reference in the registration statement (No.
333-15815) on Form S-8 of Spacelabs Medical, Inc. of our report dated May 29,
1998 relating to the statements of assets available for plan benefits of
Spacelabs Medical, Inc. Incentive Savings and Stock Ownership Plan as of
December 31, 1997 and 1996, and the statements of changes in assets available
for plan benefits for the years then ended, and all related supplementary
schedules as of and for the year ended December 31, 1997, which report appears
in the December 31, 1997 annual report on Form 11-K of Spacelabs Medical, Inc.
Incentive Savings and Stock Ownership Plan.
KPMG Peat Marwick LLP
Seattle, Washington
June 26, 1998
