<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 1999
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
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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
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SPACELABS MEDICAL, INC.
INCENTIVE SAVINGS AND
STOCK OWNERSHIP PLAN
Financial Statements and Schedules
December 31, 1999 and 1998
(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 Net Assets Available for Benefits, December 31, 1999 and 1998 2
Statements of Changes in Net Assets Available for Benefits, Years ended
December 31, 1999 and 1998 3
Notes to Financial Statements, December 31, 1999 and 1998 4
SCHEDULE 1 Schedule of Assets Held for Investment Purposes, December 31, 1999 10
</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 net assets available for benefits
of Spacelabs Medical, Inc. Incentive Savings and Stock Ownership Plan (Plan) as
of December 31, 1999 and 1998 and the related statements of changes in net
assets available for benefits for the years then ended. These financial
statements are the responsibility of the Plan's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan as of
December 31, 1999 and 1998, and the changes in net assets available for 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 schedule of assets held
for investment purposes is presented for the purpose of additional analysis and
is not a required part of the basic financial statements but is 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. This supplemental schedule is the responsibility of the Plan's management.
The supplemental schedule has been subjected to the auditing procedures applied
in the audits of the basic financial statements and, in our opinion, is fairly
stated in all material respects in relation to the basic financial statements
taken as a whole.
KPMG LLP
Seattle, Washington
June 9, 2000
1
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SPACELABS MEDICAL, INC.
INCENTIVE SAVINGS AND STOCK OWNERSHIP PLAN
Statements of Net Assets Available for Benefits
December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Investments, at fair value
Cash and cash equivalents $ -- 265,600
Mutual funds 27,637,257 22,330,187
Common stocks 4,798,663 4,711,619
----------- -----------
Total investments 32,435,920 27,307,406
Receivables:
Employees' contributions 274,742 234,117
Employer's contributions 82,411 92,416
----------- -----------
Net assets available for benefits $32,793,073 27,633,939
=========== ===========
</TABLE>
See accompanying notes to financial statements.
2
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SPACELABS MEDICAL, INC.
INCENTIVE SAVINGS AND STOCK OWNERSHIP PLAN
Statements of Changes in Net Assets Available for Benefits
Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Investment income:
Interest and dividends $ 1,730,255 1,723,903
Net appreciation in fair value of investments 1,639,264 2,021,280
------------ ------------
Net investment income 3,369,519 3,745,183
Contributions:
Employees 3,510,989 2,785,795
Employer 931,899 601,017
------------ ------------
Total contributions 4,442,888 3,386,812
------------ ------------
Total additions 7,812,407 7,131,995
Benefits paid to participants (2,653,273) (4,906,461)
------------ ------------
Increase in net assets available for benefits 5,159,134 2,225,534
Net assets available for benefits at beginning of year 27,633,939 25,408,405
------------ ------------
Net assets available for benefits at end of year $ 32,793,073 27,633,939
============ ============
</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, 1999 and 1998
(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 U.S. resident employees of Spacelabs Medical, Inc.
(Sponsor or Company) who have completed a sixty-day service
period. Participants who are full-time employees and who have
completed one year of service or part-time employees who have
completed twelve consecutive months of service and have been
credited with at least 1,000 hours are eligible for employer
matching and discretionary contributions. 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.
Effective April 1, 1999, the Plan's assets are held in trust
by Fidelity Management Trust Company (Trustee).
Administrative expenses of the Plan are paid by the Sponsor.
(c) CONTRIBUTIONS
Participants may elect to contribute up to 16% of
compensation, as defined, to the Plan subject to a pretax
limit of $10,000 in 1999 and 1998. 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
(Continued)
4
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SPACELABS MEDICAL, INC.
INCENTIVE SAVINGS AND STOCK OWNERSHIP PLAN
Notes to Financial Statements
December 31, 1999 and 1998
same manner as their contributions. Employer stock
contributions were valued at $849,215 and $557,030 in 1999 and
1998, respectively.
(d) INVESTMENT OPTIONS
Effective April 1, 1999 the Plan offers the following
investment options: The Fidelity Managed Income Portfolio
Fund, the Fidelity U.S. Bond Index Fund, the Fidelity Puritan
Fund, the Fidelity Dividend Growth Fund, the Fidelity Fund,
the Spartan U.S. Equity Index Fund, the Fidelity Blue Chip
Growth Fund, the Fidelity Aggressive Growth Fund, the Alger
Retirement Fund Small Cap Retirement Portfolio, the Fidelity
Diversified International Fund, and the Company Stock Fund.
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.
Prior to October 2, 1998, the Plan also offered the ATL Stock
Fund. In April 1998, ATL Ultrasound, Inc. (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.
(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 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
daily.
(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.
(Continued)
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SPACELABS MEDICAL, INC.
INCENTIVE SAVINGS AND STOCK OWNERSHIP PLAN
Notes to Financial Statements
December 31, 1999 and 1998
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 AND FORFEITURES
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
PERIOD OF SERVICE VESTED
---------------- ------
<S> <C>
Less than one year 0%
One year 20
Two years 40
Three years 60
Four years 80
Five years or more 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, 1999 and 1998 forfeited non-vested accounts
totaled $21,704 and $11,982, respectively. These accounts will
be used to reduce future employer contributions. Also, in 1999
and 1998, employer contributions were reduced by $12,323 and
$35,399, 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.
(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.
(Continued)
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SPACELABS MEDICAL, INC.
INCENTIVE SAVINGS AND STOCK OWNERSHIP PLAN
Notes to Financial Statements
December 31, 1999 and 1998
Net appreciation in the fair value of investments consists of
the realized gains or losses and the unrealized appreciation
(depreciation) on those investments.
In September 1999, the American Institute of Certified Public
Accountants issued Statement of Position 99-3, Accounting and
Reporting of Certain Defined Benefit Contribution Plan
Investments and Other Disclosure Matters (SOP 99-3). SOP 99-3
simplifies the disclosure for certain investments and is
effective for plan years ending after December 15, 1999. The
Plan adopted SOP 99-3 during the Plan year ended December 31,
1999. Accordingly, information previously required to be
disclosed about participant-directed fund investment programs
is not presented in the Plan's financial statements.
(c) BENEFITS
Benefits are recorded when paid.
(d) 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.
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 of $420,258 and $528,848 at December 31, 1999
and 1998, 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 $108,590 in
1999 and an increase in the liability of $143,373 in 1998.
(5) RELATED PARTY TRANSACTIONS
Certain Plan investments are shares of mutual funds managed by the
Trustee. Therefore, Plan transactions involving these mutual funds
qualify as party-in-interest transactions.
(Continued)
7
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SPACELABS MEDICAL, INC.
INCENTIVE SAVINGS AND STOCK OWNERSHIP PLAN
Notes to Financial Statements
December 31, 1999 and 1998
(6) INVESTMENTS
The following table presents the assets held for investment purposes at
December 31:
<TABLE>
<CAPTION>
1999 1998
---------------------------- ----------------------------
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
----------- ----------- ----------- -----------
Mutual funds:
Alger Retirement Fund Small Cap
Retirement Portfolio 162,320 4,621,249 155,416 3,186,020
Fidelity Aggressive Growth Fund 20,609 1,228,931 -- --
Fidelity Blue Chip Growth Fund 11,684 702,340 -- --
Fidelity Diversified International 138,783 3,555,626 -- --
Fund
Fidelity Dividend Growth Fund 346,212 10,036,699 -- --
Fidelity Fund 7,507 319,889 -- --
Fidelity Managed Income Portfolio 5,500,047 5,500,047 -- --
Fund
Fidelity Puritan Fund 61,803 1,176,116 -- --
Fidelity US Bond Index Fund 11,265 114,789 -- --
Spartan(R) US Equity Index Fund 7,325 381,571 -- --
Dodge & Cox Balanced Fund -- -- 17,615 1,148,843
Invesco Collective Trust, IRT Stable -- -- 5,325,519 5,325,519
Value Fund
Scudder Global Stock Fund -- -- 91,015 2,610,297
Vanguard Group Windsor II Fund -- -- 337,002 10,059,508
----------- ----------- ----------- -----------
Total mutual funds 6,267,555 27,637,257 5,926,567 22,330,187
----------- ----------- ----------- -----------
Common stock:
Spacelabs Medical, Inc. 258,507 4,798,663 204,853 4,711,619
----------- ----------- ----------- -----------
Total investments $32,435,920 $27,307,406
=========== ===========
</TABLE>
(Continued)
8
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SPACELABS MEDICAL, INC.
INCENTIVE SAVINGS AND STOCK OWNERSHIP PLAN
Notes to Financial Statements
December 31, 1999 and 1998
During the years ended December 31, 1999 and 1998, the Plan's investments
appreciated in value as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Mutual funds $ 2,393,778 1,074,327
Common stock (754,514) 946,953
----------- -----------
$ 1,639,264 2,021,280
=========== ===========
</TABLE>
(7) NONPARTICIPANT-DIRECTED INVESTMENTS
A portion of the Company Stock Fund is nonparticipant-directed. Information
about the net assets and the significant components of the changes in net
assets relating to the Company Stock Fund is as follows:
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
Net assets:
Cash and cash equivalents $ - 116,263
Contributions receivable 83,804 104,457
Common stock 4,798,663 4,711,619
------------ -----------
$ 4,882,467 4,932,339
============ ============
</TABLE>
<TABLE>
<CAPTION> Year Ended
December 31, 1999
-----------------
<S> <C>
Changes in net assets:
Contributions $ 992,261
Interest and dividends 10,636
Net depreciation (810,912)
Benefits paid to participants (322,733)
Net transfers from participant-directed accounts 80,876
-----------------
$ (49,872)
=================
</TABLE>
9
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SPACELABS MEDICAL, INC.
INCENTIVE SAVINGS AND STOCK OWNERSHIP PLAN
Schedule 1
Schedule of Assets Held for Investment Purposes
December 31, 1999
<TABLE>
<CAPTION>
DESCRIPTION OF INVESTMENT,
INCLUDING MATURITY DATE, RATE
IDENTIFY OF ISSUE, BORROWER, OF INTEREST, COLLATERAL, PAR OR CURRENT
LESSOR, OR SIMILAR PARTY MATURITY VALUE SHARES VALUE
---------------------------- ------------------------------- ------ -------
<S> <C> <C> <C>
Mutual funds:
Alger Retirement Fund Small
Cap Retirement Portfolio Small Capitalization Equity Fund 162,320 $ 4,621,249
Fidelity Aggressive Growth Fund Equity Growth Fund 20,609 1,228,931
Fidelity Blue Chip Growth Fund Large Capitalization Equity Fund 11,684 702,340
Fidelity Diversified
International Fund Foreign Equity Fund 138,783 3,555,626
Fidelity Dividend Growth Fund Diversified Equity Fund 346,212 10,036,699
Fidelity Fund Stock and Bond Fund 7,507 319,889
Fidelity Managed Income
Portfolio Fund Money Market Fund 5,500,047 5,500,047
Fidelity Puritan Fund Diversified Equity Fund 61,803 1,176,116
Fidelity U.S. Bond Index Fund Lehman Brothers Aggregate Bond Index Fund 11,265 114,789
Spartan(R) U.S. Equity Index Fund Standard & Poor 500 Index Fund 7,325 381,571
Common stock:
* Spacelabs Medical, Inc. Common stock, cost of $5,000,790 258,507 4,798,663
* Spacelabs Medical, Inc., the Plan Sponsor, is a party-in-interest as
defined by section 3(14) of ERISA.
</TABLE>
10
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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: 6/23/00 By: /s/ JAMES A. RICHMAN
--------------------------------- ------------------------------------------
James A. Richman
Vice President and
Corporate Controller
<PAGE> 15
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description Page
----------- ---------------------- ----
<S> <C> <C>
23.1 Consent of KPMG
</TABLE>
