<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, 1998
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, 1998 and 1997
(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, 1998 and 1997 2
Statements of Changes in Assets Available for Plan Benefits, Years ended
December 31, 1998 and 1997 3
Notes to Financial Statements, December 31, 1998 and 1997 4
SCHEDULES
1--Line 27(a)--Schedule of Assets Held for Investment Purposes,
December 31, 1998 14
2--Line 27(d)--Schedule of Reportable Transactions, Year ended
December 31, 1998 15
</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, 1998 and 1997 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, 1998 and 1997, and the changes in 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 of assets held
for investment purposes and reportable transactions 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. These supplemental
schedules are the responsibility of the Plan's management. The supplemental
schedules 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.
KPMG LLP
Seattle, Washington
June 11, 1999
1
<PAGE> 5
SPACELABS MEDICAL, INC.
INCENTIVE SAVINGS AND STOCK OWNERSHIP PLAN
Statements of Assets Available for Plan Benefits
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Investments, at fair value:
Cash and cash equivalents $ 265,600 103,100
Mutual funds 22,330,187 20,757,602
Common stocks 4,711,619 4,213,495
----------- -----------
Total investments 27,307,406 25,074,197
Receivables:
Employees' contributions 234,117 219,132
Employer's contributions 92,416 115,076
----------- -----------
Assets available for plan benefits $27,633,939 25,408,405
=========== ===========
</TABLE>
See accompanying notes to financial statements.
2
<PAGE> 6
SPACELABS MEDICAL, INC.
INCENTIVE SAVINGS AND STOCK OWNERSHIP PLAN
Statements of Changes in Assets Available for Plan Benefits
Years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Investment income:
Interest and dividends $ 1,723,903 1,925,735
Net appreciation in fair value of investments 2,021,280 1,881,284
------------ ------------
Net investment income 3,745,183 3,807,019
------------ ------------
Contributions:
Employees 2,785,795 2,356,197
Employer 601,017 658,040
------------ ------------
Total contributions 3,386,812 3,014,237
------------ ------------
Total additions 7,131,995 6,821,256
Benefits paid to participants (4,906,461) (5,035,830)
------------ ------------
Increase in assets available for plan benefits 2,225,534 1,785,426
Assets available for plan benefits at beginning of year 25,408,405 23,622,979
------------ ------------
Assets available for plan benefits at end of year $ 27,633,939 25,408,405
============ ============
</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, 1998 and 1997
(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.
(a) 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 twelve consecutive months of
service and have been credited with at least 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
the completion of a sixty-day service period. The Plan is subject
to the provisions of the Employee Retirement Income Security Act
of 1974 (ERISA).
(b) ADMINISTRATION
The plan administrator is the Sponsor, which appointed a Benefits
Committee to administer the Plan.
Through March 31, 1999 the Plan's investments were held in trust by
U.S. Bank of Washington NA Trust and Investment Management Division
(Trustee).
Effective April 1, 1999, the Plan's assets are held in trust by
Fidelity Management & Research Corp.
(c) CONTRIBUTIONS
Participants may elect to contribute from 2% to 16% of compensation,
as defined, to the Plan subject to a pretax limit of $10,000 in 1998
and $9,500 in 1997. 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 employee 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 Common 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 $557,030
and $608,847 in 1998 and 1997, respectively. Forfeitures of employer
matching contributions are used to reduce future employer
contributions.
4
<PAGE> 8
SPACELABS MEDICAL, INC.
INCENTIVE SAVINGS AND STOCK OWNERSHIP PLAN
Notes to Financial Statements
December 31, 1998 and 1997
(d) INVESTMENT OPTIONS
Through March 31, 1999 the Plan offered 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.
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
Stock 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. (ATL).
In April 1998, ATL spun off one of its divisions as an independent,
publicly owned company (SonoSite, Inc.), and as a result, ATL
shareholders received one share of SonoSite common stock for each
three shares of ATL common stock held. The SonoSite common stock
received by the participants invested in ATL common stock was
immediately sold and reinvested in ATL common stock.
On October 2, 1998, ATL was acquired by Royal Philips Electronics of
the Netherlands in exchange for approximately $50.50 for each
outstanding share of ATL common stock. The cash received by
participants invested in ATL common stock was allocated to other
investment options at the direction of the participant.
Effective April 1, 1999 the Plan offers the following investment
options: The Fidelity Managed Income Portfolio, the Fidelity Bond
Index Fund, the Fidelity Puritan Fund, the Fidelity Dividend Growth
Fund, the Fidelity Fund, the Spartan U.S. Index Fund, the Fidelity
Blue Chip Growth Fund, the Fidelity Emerging Growth Fund, the Alger
Retirement Fund Small Cap. Portfolio, the Fidelity Diversified
International Fund, and the Company Stock Fund.
(e) 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
5
<PAGE> 9
SPACELABS MEDICAL, INC.
INCENTIVE SAVINGS AND STOCK OWNERSHIP PLAN
Notes to Financial Statements
December 31, 1998 and 1997
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.
6
<PAGE> 10
SPACELABS MEDICAL, INC.
INCENTIVE SAVINGS AND STOCK OWNERSHIP PLAN
Notes to Financial Statements
December 31, 1998 and 1997
(f) 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 common shares and/or ATL Ultrasound, Inc. common
shares (prior to October 2, 1998) plus cash for any fractional
share.
(g) 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>
Participants become immediately vested in employer matching
contributions upon termination of employment due to retirement,
death or total and permanent disability.
At December 31, 1998 and 1997 forfeited nonvested accounts totaled
$11,982 and $14,393, respectively. These accounts will be used to
reduce future employer contributions. Also, in 1998 and 1997,
employer contributions were reduced by $35,399 and $44,736,
respectively, from forfeited nonvested accounts.
(h) 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.
7
<PAGE> 11
SPACELABS MEDICAL, INC.
INCENTIVE SAVINGS AND STOCK OWNERSHIP PLAN
Notes to Financial Statements
December 31, 1998 and 1997
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) BASIS OF PRESENTATION
The accompanying financial statements have been prepared on the
accrual basis of accounting.
(b) VALUATION OF INVESTMENTS
Investments of the Plan are stated at fair value as determined by
closing market prices for the securities. 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.
(c) 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.
(d) EXPENSES
Administrative expenses of the Plan are paid by the Sponsor.
(e) BENEFITS
Benefits are recorded when paid.
(f) 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 changes therein, and disclosure of
contingent assets and liabilities at the date of the financial
statements. 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.
8
<PAGE> 12
SPACELABS MEDICAL, INC.
INCENTIVE SAVINGS AND STOCK OWNERSHIP PLAN
Notes to Financial Statements
December 31, 1998 and 1997
(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 of $528,848 and $385,475 at December 31, 1998 and 1997,
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 an increase in the liability of $143,373 in 1998 and a
decrease in the liability of $353,756 in 1997.
9
<PAGE> 13
SPACELABS MEDICAL, INC.
INCENTIVE SAVINGS AND STOCK OWNERSHIP PLAN
Notes to Financial Statements
December 31, 1998 and 1997
(5) INVESTMENTS
The following table presents the assets held for investment purposes at
December 31:
<TABLE>
<CAPTION>
1998 1997
------------------------------ ------------------------------
PRINCIPAL PRINCIPAL
AMOUNT OR INVEST- AMOUNT OR INVEST-
NUMBER MENT NUMBER MENT
OF SHARES VALUE OF SHARES VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash and cash equivalents:
First American Funds Inc. Prime
Obligations Money Market Fund 265,600 $ 265,600 103,100 $ 103,100
----------- ----------- ----------- -----------
Mutual funds:
Alger Retirement Funds Small Cap
Retirement Portfolio 155,416 3,186,020 141,820 2,511,628
Dodge & Cox Balanced Fund 17,615 1,148,843 13,438 897,375
Invesco Collective Trust, IRT Stable 5,325,519 5,325,519 5,504,789 5,504,789
Value Fund
Scudder Global Stock Fund 91,015 2,610,297 77,789 2,199,860
Vanguard Group Windsor II Fund 337,002 10,059,508 336,965 9,643,950
----------- ----------- ----------- -----------
Total mutual funds 5,926,567 22,330,187 6,074,801 20,757,602
----------- ----------- ----------- -----------
Common stock:
Spacelabs Medical, Inc. 204,853 4,711,619 167,955 3,191,145
ATL Ultrasound, Inc. -- -- 22,225 1,022,350
----------- ----------- ----------- -----------
Total common stock 204,853 4,711,619 190,180 4,213,495
----------- ----------- ----------- -----------
Total investments $27,307,406 $25,074,197
=========== ===========
</TABLE>
During the years ended December 31, 1998 and 1997, the Plan's investments
appreciated in value as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Mutual funds $1,074,327 $1,755,443
Common stock 946,953 125,841
---------- ----------
$2,021,280 $1,881,284
========== ==========
</TABLE>
(6) YEAR 2000
The Plan administrator has conducted a comprehensive review of its
internal systems and applications to mitigate the risks associated with
Year 2000 compliance issues and has developed a Year 2000 remediation
plan. Program conversions and testing of systems and applications are
underway and expected to be completed by December 31, 1999. The Plan
administrator has inquired of the Plan's third-party service providers
relating to their Year 2000 compliance. While these entities indicate they
believe they are or will
10
<PAGE> 14
SPACELABS MEDICAL, INC.
INCENTIVE SAVINGS AND STOCK OWNERSHIP PLAN
Notes to Financial Statements
December 31, 1998 and 1997
be compliant, the Plan administrator has limited ability to evaluate their
responses or to evaluate what impact, if any, such entities' potential
noncompliance may have on the Plan's operations.
11
<PAGE> 15
SPACELABS MEDICAL, INC.
INCENTIVE SAVINGS AND STOCK OWNERSHIP PLAN
Notes to Financial Statements
December 31, 1998 and 1997
(7) ASSETS ALLOCATED BY FUND
Assets available for plan benefits at December 31, 1998 and 1997 are
allocated as follows:
<TABLE>
<CAPTION>
FIXED DIVERSIFIED
INCOME BALANCED EQUITY GLOBAL
1998 FUND FUND FUND FUND
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Investments, fair value:
Cash and cash equivalents $ 12,597 16,291 34,805 30,526
Mutual funds 5,325,519 1,148,843 10,059,508 2,610,297
Common stocks -- -- -- --
----------- ----------- ----------- -----------
Total investments 5,338,116 1,165,134 10,094,313 2,640,823
Receivables:
Employees' contributions 21,562 25,941 82,912 37,371
Employer's contributions -- -- -- --
----------- ----------- ----------- -----------
Assets available for plan benefits $ 5,359,678 1,191,075 10,177,225 2,678,194
=========== =========== =========== ===========
1997
Investments, 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 -- -- -- --
----------- ----------- ----------- -----------
Total investments 5,508,025 897,659 9,652,619 2,200,634
Receivables:
Employees' contributions 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
GROWTH STOCK STOCK
1998 FUND FUND FUND TOTAL
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Investments, fair value:
Cash and cash equivalents 54,187 116,263 931 265,600
Mutual funds 3,186,020 -- -- 22,330,187
Common stocks -- 4,711,619 -- 4,711,619
----------- ----------- ----------- -----------
Total investments 3,240,207 4,827,882 931 27,307,406
Receivables:
Employees' contributions 54,290 12,041 -- 234,117
Employer's contributions -- 92,416 -- 92,416
----------- ----------- ----------- -----------
Assets available for plan benefits 3,294,497 4,932,339 931 27,633,939
=========== =========== =========== ===========
1997
Investments, 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
----------- ----------- ----------- -----------
Total investments 2,512,033 3,275,047 1,028,180 25,074,197
Receivables:
Employees' contributions 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>
12
<PAGE> 16
SPACELABS MEDICAL, INC.
INCENTIVE SAVINGS AND STOCK OWNERSHIP PLAN
Notes to Financial Statements
December 31, 1998 and 1997
(8) CHANGES IN ASSETS ALLOCATED BY FUND
Changes in assets available for plan benefits for the years ended
December 31, 1998 and 1997 are allocated as follows:
<TABLE>
<CAPTION>
FIXED DIVERSIFIED
INCOME BALANCED EQUITY GLOBAL
1998 FUND FUND FUND FUND
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Investment income:
Interest and dividends $ 336,567 94,194 1,011,824 259,646
Net appreciation (depreciation) in fair
value of investments -- (30,410) 453,609 18,515
----------- ----------- ----------- -----------
Net investment income 336,567 63,784 1,465,433 278,161
Contributions 245,811 307,860 1,012,645 484,552
----------- ----------- ----------- -----------
Net additions 582,378 371,644 2,478,078 762,713
Benefits paid to participants (1,586,123) (171,391) (1,648,473) (304,983)
Interfund transfers 829,650 72,936 (374,381) (18,853)
----------- ----------- ----------- -----------
Increase (decrease) in fund
balances (174,095) 273,189 455,224 438,877
Assets available for plan benefits at
beginning of year 5,533,773 917,886 9,722,001 2,239,317
----------- ----------- ----------- -----------
Assets available for plan benefits at
end of year $ 5,359,678 1,191,075 10,177,225 2,678,194
=========== =========== =========== ===========
1997
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
GROWTH STOCK STOCK
1998 FUND FUND FUND TOTAL
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Investment income:
Interest and dividends 11,599 4,663 5,410 1,723,903
Net appreciation (depreciation) in fair
value of investments 632,613 798,391 148,562 2,021,280
----------- ----------- ----------- -----------
Net investment income 644,212 803,054 153,972 3,745,183
Contributions 649,773 686,171 -- 3,386,812
----------- ----------- ----------- -----------
Net additions 1,293,985 1,489,225 153,972 7,131,995
Benefits paid to participants (648,046) (476,491) (70,954) (4,906,461)
Interfund transfers 91,678 509,237 (1,110,267) --
----------- ----------- ----------- -----------
Increase (decrease) in fund
balances 737,617 1,521,971 (1,027,249) 2,225,534
Assets available for plan benefits at
beginning of year 2,556,880 3,410,368 1,028,180 25,408,405
----------- ----------- ----------- -----------
Assets available for plan benefits at
end of year 3,294,497 4,932,339 931 27,633,939
=========== =========== =========== ===========
1997
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>
13
<PAGE> 17
SCHEDULE 1
SPACELABS MEDICAL, INC.
INCENTIVE SAVINGS AND STOCK OWNERSHIP PLAN
Line 27(a)--Schedule of Assets Held for Investment Purposes
December 31, 1998
<TABLE>
<CAPTION>
DESCRIPTION OF INVESTMENT, INCLUDING
IDENTITY OF ISSUE, BORROWER, MATURITY DATE, RATE OF INTEREST, CURRENT
LESSOR, OR SIMILAR PARTY COLLATERAL, PAR OR MATURITY VALUE SHARES COST VALUE
--------------------------------- ------------------------------------ --------- ---------- ----------
<S> <C> <C> <C> <C>
Cash and cash equivalents:
First American Funds Inc. Prime Obligations Money Market Fund 265,600 $ 265,600 265,600
Mutual funds:
Alger Retirement Funds Small Cap Retirement Portfolio 155,416 2,606,367 3,186,020
Dodge & Cox Balanced Fund 17,615 1,088,647 1,148,843
Invesco Collective Trust IRT Stable Value Fund 5,325,519 5,325,519 5,325,519
Scudder Global Stock Fund 91,015 2,511,040 2,610,297
Vanguard Group Windsor II Fund 337,002 7,054,115 10,059,508
Common stock:
* Spacelabs Medical, Inc. Common stock 204,853 4,174,251 4,711,619
* Spacelabs Medical, Inc., the Plan Sponsor, is a party-in-interest as defined by section 3(14) of ERISA.
</TABLE>
14
<PAGE> 18
SCHEDULE 2
SPACELABS MEDICAL, INC.
INCENTIVE SAVINGS AND STOCK OWNERSHIP PLAN
Line 27(d)--Schedule of Reportable Transactions(1)
Year ended December 31, 1998
<TABLE>
<CAPTION>
CURRENT VALUE
OF ASSETS ON
PURCHASE SELLING COST OF TRANSACTION NET GAIN
IDENTITY OF PARTY INVOLVED DESCRIPTION OF ASSET PRICE PRICE ASSET DATE (LOSS)
- --------------------------- ----------------------------------- ----------- ---------- ---------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
First American Funds Inc. Prime Obligations Money Market Fund $8,725,606 -- 8,725,606 8,725,606 --
First American Funds Inc. Prime Obligations Money Market Fund -- 8,563,763 8,563,763 8,563,763 --
Alger Retirement Funds Small Cap Retirement Portfolio 1,362,272 -- 1,362,272 1,362,272 --
Alger Retirement Funds Small Cap Retirement Portfolio -- 1,093,448 925,905 1,093,448 167,543
Invesco Collective Trust IRT Stable Value Fund 1,559,995 -- 1,559,995 1,559,995 --
Invesco Collective Trust IRT Stable Value Fund -- 1,739,266 1,739,266 1,739,266 --
Vanguard Group Windsor II Fund 2,311,535 -- 2,311,535 2,311,535 --
Vanguard Group Windsor II Fund -- 2,349,588 1,534,767 2,349,588 814,821
Spacelabs Medical, Inc. Common Stock 725,514 -- 725,514 725,514 --
Spacelabs Medical, Inc. Common Stock -- 622,381 750,086 622,381 (127,705)
ATL Ultrasound, Inc. Common Stock 103,691 -- 103,691 103,691 --
ATL Ultrasound, Inc. Common Stock -- 1,224,488 368,407 1,224,488 856,081
</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.
15
<PAGE> 19
SIGNATURES
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: 6/28/99 By: /s/ James A. Richman
-------------------------- --------------------------------
James A. Richman
Vice President and
Corporate Controller
<PAGE> 20
INDEX TO EXHIBITS
Exhibit No. Description Page
- ----------- ----------- ----
23.1 Consent of KPMG LLP
<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 June 11,
1999 relating to the statements of assets available for plan benefits of
Spacelabs Medical, Inc. Incentive Savings and Stock Ownership Plan as of
December 31, 1998 and 1997, and the statements of changes in assets available
for plan benefits for the years then ended and the related supplementary
schedules as of and for the year ended December 31, 1998, which report appears
in the December 31, 1998 annual report on Form 11-K of Spacelabs Medical, Inc.
Incentive Savings and Stock Ownership Plan.
KPMG LLP
Seattle, Washington
June 25, 1999
