<PAGE>   1
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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   ----------

                                    FORM 10-Q

        [X ]    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                  FOR THE QUARTERLY PERIOD ENDED MARCH 28, 1998

                                       OR

        [ ]     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 0-20083

                                   ----------

                             SPACELABS MEDICAL, INC.
             (Exact name of registrant as specified in its charter)

              DELAWARE                                         91-1558809
     (State or other jurisdiction of                         (I.R.S. Employer
      incorporation or organization)                         Identification No.)

        15220 N.E. 40TH STREET, P.O. BOX 97013, REDMOND, WASHINGTON 98073
               (Address of principal executive offices)           (Zip Code)


       Registrant's telephone number, including area code: (425) 882-3700


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X]  No [ ]


      Common stock, par value $.01 per share: 9,463,721 shares outstanding
                              as of April 24, 1998




                    Page 1 of 13 sequentially numbered pages


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<PAGE>   2


                             SPACELABS MEDICAL, INC.

                                    FORM 10-Q

                  FOR THE QUARTERLY PERIOD ENDED MARCH 28, 1998


                                TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                                                                Page
                                                                                ----
<S>         <C>                                                                  <C>
PART I.     Financial Information

Item 1.     Financial Statements
            Condensed Consolidated Balance Sheets
                 - March 28, 1998 (unaudited) and December 26, 1997.............   3
            Condensed Consolidated Statements of Operations (unaudited)
                - Three Months Ended March 28, 1998 and March 29, 1997..........   4
            Condensed Consolidated Statements of Cash Flows (unaudited)
                - Three Months Ended March 28, 1998 and March 29, 1997..........   5
            Notes to Condensed Consolidated Financial Statements................   6

Item 2.     Management's Discussion and Analysis of Financial Condition
              and Results of Operations.........................................   8
</TABLE>


PART II.    Other Information

Item 6.     Exhibits and Reports on Form 8-K

            There were no reports on Form 8-K filed during the three months
            ended March 28, 1998.



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<PAGE>   3


PART I.

Item 1.  Financial Statements

                             SPACELABS MEDICAL, INC.

                      CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                      -------------------------------
                                                         March 28,       December 26,
    (in thousands)                                         1998              1997
-------------------------------------------------------------------------------------
                                                        (unaudited)
<S>                                                      <C>             <C>
                     ASSETS
Current assets
   Cash and short-term investments ................      $   7,409       $  12,934
   Marketable securities ..........................          6,140          10,859
   Receivables ....................................         66,829          70,691
   Inventories
    Raw materials .................................         11,456          16,965
    Work in process ...............................          9,742           8,516
    Finished products .............................         15,854          16,115
    Demonstration equipment .......................          5,261           5,635
    Customer service parts and equipment ..........         12,031          12,548
                                                         ---------       ---------
                                                            54,344          59,779
                                                         ---------       ---------
   Prepaid expenses ...............................          1,648           2,304
   Deferred income taxes ..........................         25,088          22,557
                                                         ---------       ---------
               Total current assets ...............        161,458         179,124
                                                         ---------       ---------

Property, plant and equipment, net ................         64,626          65,334
Deferred income taxes .............................          1,638           1,495
Other assets, net .................................         43,742          44,239
                                                         ---------       ---------
                                                         $ 271,464       $ 290,192
                                                         =========       =========
           LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
   Short-term borrowings ..........................      $   2,333       $   1,314
   Current portion of long-term debt ..............          4,351           5,507
   Accounts payable and accrued expenses ..........         44,176          44,131
   Deferred revenue ...............................          4,291           4,082
   Taxes on income ................................          2,240           3,443
                                                         ---------       ---------
                Total current liabilities .........         57,391          58,477
                                                         ---------       ---------

Long-term obligations .............................         52,744          66,846

Shareholders' equity
   Common stock, paid-in capital and unearned stock
     compensation .................................        100,199         100,387
   Retained earnings ..............................        101,429         102,300
   Treasury shares at cost ........................        (40,759)        (40,871)
   Accumulated other comprehensive income .........            460           3,053
                                                         ---------       ---------
                Total shareholders' equity ........        161,329         164,869
                                                         ---------       ---------
                                                         $ 271,464       $ 290,192
                                                         =========       =========

----------------------------------------------------------------------------------
Common shares outstanding .........................          9,467           9,465
                                                         =========       =========
</TABLE>

     See accompanying notes to condensed consolidated financial statements.


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<PAGE>   4

                             SPACELABS MEDICAL, INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                         Three Months Ended
                                                                      --------------------------
                                                                       March 28,       March 29,
(in thousands, except per share data)                                    1998             1997
------------------------------------------------------------------------------------------------
                                                                               (unaudited)
<S>                                                                      <C>            <C>     
Revenue .............................................................    $ 66,507       $ 63,020

Cost of sales
    Inventory write-down associated with product line restructuring..       4,000             --
    Other ...........................................................      36,307         31,489
                                                                         --------       --------
       Total cost of sales ..........................................      40,307         31,489
                                                                         --------       --------
Gross margin .........................................................     26,200         31,531
                                                                         --------       --------
Operating expenses
    Selling, general and administrative ..............................     22,264         18,858
    Research and development .........................................      8,441          7,425
    Acquisition of in-process research and development ...............         --          6,500
    Restructuring of operations ......................................        500             --
                                                                         --------       --------
                                                                           31,205         32,783
                                                                         --------       --------
Loss from operations .................................................     (5,005)        (1,252)

Other income (expense)
    Interest income ..................................................        145            450
    Interest expense .................................................     (1,187)          (285)
    Other income (expense), net ......................................      4,673           (248)
                                                                         --------       --------
Loss before income taxes .............................................     (1,374)        (1,335)

Provision (benefit) for income taxes .................................       (503)         1,934
                                                                         --------       --------
Net loss .............................................................   $   (871)      $ (3,269)
                                                                         ========       ========
Basic and diluted net loss per share .................................   $  (0.09)      $  (0.34)
                                                                         ========       ========
Weighted average common shares outstanding -
    Basic and diluted ................................................      9,460          9,669
                                                                         ========       ========
</TABLE>


     See accompanying notes to condensed consolidated financial statements.


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<PAGE>   5


                             SPACELABS MEDICAL, INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                              Three Months Ended
                                                                        -----------------------------
                                                                              March 28,      March 29,
(in thousands)                                                                   1998          1997
-----------------------------------------------------------------------------------------------------
                                                                                     (unaudited)
<S>                                                                           <C>            <C>      
Operating activities
   Net loss ............................................................      $   (871)      $ (3,269)
   Adjustments  to reconcile  net loss to net cash provided by (used in)
    operating activities
      Depreciation and amortization ....................................         2,420          2,046
      Gain on sale of marketable equity securities .....................        (6,321)            --
      Loss due to permanent impairment of equity securities ............         1,000             --
      Deferred income tax benefit ......................................        (1,375)          (586)
      Contribution to 401(k) plan in common stock ......................           156            228
      Changes in operating assets and liabilities
         Decrease in receivables .......................................         3,653          3,224
         (Increase) decrease in inventories ............................         5,390         (1,414)
         Decrease in prepaid expenses ..................................           668             23
         Increase (decrease) in accounts payable and accrued expenses ..            73           (611)
         Increase in deferred revenue ..................................           199            237
         Decrease in taxes on income ...................................        (1,235)          (140)
      Other ............................................................            --             61
                                                                              --------       --------
Net cash provided by (used in) operating activities ....................         3,757           (201)
                                                                              --------       --------
Investing activities
   Proceeds on sale of marketable equity securities ....................         6,333             --
   Investment in property, plant and equipment .........................        (1,186)        (1,859)
   Purchase of equity investments ......................................            --           (948)
   Other ...............................................................            13             28
                                                                              --------       --------
Net cash provided by (used in) investing activities ....................         5,160         (2,779)
                                                                              --------       --------
Effect of exchange rate changes on cash ................................            75            349
                                                                              --------       --------
Financing activities
   Increase in short-term borrowings ...................................         1,019          2,844
   Principal payments on long-term debt ................................       (15,243)          (187)
   Purchase of treasury stock ..........................................          (386)        (6,656)
   Exercise of stock options ...........................................            96            170
                                                                              --------       --------
Net cash used in financing activities ..................................       (14,514)        (3,829)
                                                                              --------       --------
Decrease in cash and cash equivalents ..................................        (5,522)        (6,460)
Cash and cash equivalents at beginning of period .......................        11,911         25,834
                                                                              --------       --------
Cash and cash equivalents at end of period .............................      $  6,389       $ 19,374
                                                                              ========       ========
</TABLE>


     See accompanying notes to condensed consolidated financial statements.


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<PAGE>   6


                             SPACELABS MEDICAL, INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



1.   Basis of Presentation

     The accompanying condensed consolidated financial statements include the
     accounts of Spacelabs Medical, Inc. and its subsidiaries, collectively
     referred to as the "Company." The unaudited interim condensed consolidated
     financial statements and related notes have been prepared pursuant to the
     rules and regulations of the Securities and Exchange Commission.
     Accordingly, certain information and footnote disclosures normally included
     in financial statements prepared in accordance with generally accepted
     accounting principles have been omitted pursuant to such rules and
     regulations. The accompanying condensed consolidated financial statements
     and related notes should be read in conjunction with the consolidated
     financial statements and notes thereto included in the Company's 1997
     Annual Report to Shareholders.

     The information furnished reflects, in the opinion of management, all
     adjustments, consisting of only normally recurring items, necessary for a
     fair presentation of the results for the interim periods presented. Interim
     results are not necessarily indicative of results for a full year.


2.   Inventory

     Operating results for the first quarter of 1998 include a $4.0 million
     charge related to the write-down of inventory to expected market value
     associated with the Company's plan to accelerate the introduction of
     certain monitoring products.


3.   Restructuring of Operations

     During the first quarter of 1998, the Company incurred $0.5 million in
     restructuring costs as part of a number of restructuring programs to
     improve the Company's cost structure.


4.   Other Income (Expense)

     During the first quarter of 1998, the Company realized a gain of $6.3
     million related to the sale of 350,000 shares of its equity investment in
     Physio Control International Corporation ("Physio"). Current quarter other
     income (expense) also includes $1.3 million of charges primarily related to
     the permanent impairment of an equity investment.


5.   Loss per Share

     In accordance with Statement of Financial Accounting Standards ("SFAS") No.
     128, "Earnings Per Share," the Company has reported both basic and diluted
     net loss per common share for 




                                      (6)
<PAGE>   7
     each period presented. Basic net loss per share is computed on the basis of
     the weighted-average number of common shares outstanding for the period.
     Diluted net loss per share is computed on the basis of the weighted-average
     number of common shares plus dilutive potential common shares outstanding.
     Dilutive potential common shares are calculated under the treasury stock
     method and consist of unexercised employee stock options and unvested
     restricted shares outstanding. The denominators of dilutive net loss per
     share exclude the effect of options to purchase 101,706 and 122,073 shares
     for the three months ended March 28,1998, and March 29,1997, respectively,
     as including the effect of such options would be anti-dilutive.

6.   New Accounting Pronouncement

     In June of 1997, the Financial Accounting Standards Board issued Statement
     of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
     Income." SFAS No. 130 requires that an entity report an amount representing
     total comprehensive income in condensed interim financial statements. The
     new pronouncement is effective for fiscal years beginning after December
     15, 1997, and requires reclassification of certain financial data of
     earlier periods for comparative purposes.

     Comprehensive income, in general, refers to the total change in equity
     during a period except those changes that result from investments by owners
     and distributions to owners. Comprehensive income includes net income as
     well as an other comprehensive income component comprised of certain
     revenues, expenses, gains and losses that under generally accepted
     accounting principles are reflected in shareholders' equity but excluded
     from the determination of net income. In applying the new standard, the
     Company has segregated the total accumulated other comprehensive income
     (specifically, accumulated foreign currency translation adjustments and
     unrealized gains and losses on investments available-for-sale) from the
     other components of shareholders' equity in the accompanying Condensed
     Consolidated Balance Sheets. Comprehensive losses for the three month
     periods ended March 28, 1998, and March 29, 1997, are detailed below:


<TABLE>
<CAPTION>
                                                                           Three Months Ended
                                                                        ------------------------
                                                                         March 28,     March 29,
     (in thousands)                                                        1998          1997
     ----------------------------------------------------------------  -------------------------
<S>                                                                      <C>           <C>     
     Net loss .....................................................      $  (871)      $(3,269)
     Other comprehensive loss, net of tax:
        Foreign currency translation adjustments ..................         (183)         (675)
        Unrealized gains (losses) on securities:
          Unrealized gain (loss) arising during the period on
          securities held at end of period ........................          578          (978)
          Less: reclassification  adjustment for the portion of net
                realized gain included in net loss and previously
                reported in other comprehensive income ............       (2,988)           --
                                                                         -------       -------
     Comprehensive loss, net of tax ...............................      $(3,464)      $(4,922)
                                                                         =======       =======
</TABLE>




                                      (7)
<PAGE>   8


Item 2.  Management's Discussion and Analysis of Financial Condition and 
         Results of Operations


                              RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
                                               -------------------------------------------------------
                                                                 Three months ended
                                               -------------------------------------------------------
                                                  March 28,    March 29,      Dollar       Percent
(dollars in millions, except per share data)       1998          1997         Change        Change
------------------------------------------------------------------------------------------------------
<S>                                                <C>           <C>           <C>             <C> 
Revenue .....................................      $66.5         $63.0         $ 3.5           5.5%

Gross margin ................................       26.2          31.5          (5.3)        (16.9%)
  As a % of revenue .........................       39.4%         50.0%

Operating expenses excluding acquisition and
 restructuring charges ......................       30.7          26.3           4.4          16.8%
  As a % of revenue .........................       46.2%         41.7%

Acquisition and restructuring charges:
  Acquired research and development .........         --           6.5          (6.5)       (100.0%)
  Restructuring of operations ...............        0.5            --           0.5            --

Provision (benefit) for income taxes ........       (0.5)          1.9          (2.4)       (126.0%)
  Effective tax rate ........................       36.6%          *

Net loss ....................................      $(0.9)        $(3.3)        $ 2.4          73.4%

Basic and diluted net loss per share ........      $(0.09)       $(0.34)       $ 0.25         73.5%



Net income (loss) excluding inventory
write-down, acquisition costs, restructuring
charges, and other items deemed unusual in
nature** ....................................      $(0.7)        $ 3.2         $(3.9)       (120.5%)

Diluted net income (loss) per share excluding
inventory write-down, acquisition costs,
restructuring charges and other items
deemed unusual in nature ** .................      $(0.07)       $ 0.33        $(0.40)      (121.0%)

------------------------------------------------------------------------------------------------------
*Refer to Taxes below.  ** Refer to Net Loss below
</TABLE>


Revenue

For the first quarter of 1998, worldwide revenue was $66.5 million, an increase
of 5.5% when compared to the same quarter last year. Current quarter revenue
includes approximately $11.9 million from the consolidation of the Burdick, Inc.
("Burdick") operations acquired during the third quarter of the previous year.

US revenue increased 10.4% to $44.3 million from $40.1 million in 1997. The
increase in revenue was primarily attributable to the addition of the Burdick
cardiology line offset in part by a decline in revenue from the Company's
patient monitoring products. Current quarter revenue was adversely impacted by
competitive pricing pressures in the patient monitoring market, realignment of
the Company's sales territories and the accelerated introduction of the new
SL1050(TM) monitor which competes with existing products. Domestically, the
market for patient monitoring equipment 



                                      (8)
<PAGE>   9

continues to be very soft as a result of ongoing changes in the US healthcare
delivery system. At this time, management sees no identifiable factor in the
environment that would definitively signal an end to this trend.

International revenue, including export sales, declined by 3.0% to $22.2 million
from $22.9 million in the same quarter a year ago. The decline in revenue was
primarily due to the impact of unfavorable foreign currency exchange rates
during the quarter, a troubled Asian economy and a reduction in the available
beginning of the quarter backlog relative to the same period a year ago. The
overall decline in international revenue was mitigated by the inclusion of
international cardiology revenue as a result of the August 1997 Burdick
acquisition. International revenue represented 33.4% of worldwide revenue for
the first three months of 1998 as compared to 36.3% for the same period in 1997.
While international revenue has historically offset declines in the domestic
market, such revenue is currently subject to risk due to the economic
instability in certain Asian countries.


Gross Margin

Gross margin for the quarter was 39.4% of revenue in 1998 compared to 50.0% in
the same quarter of 1997. Current quarter margins were negatively impacted by a
$4.0 million write-down of inventory resulting from the accelerated introduction
of certain monitoring products. The Company is accelerating the introduction of
these new products in order to maximize its position in the highly competitive
patient monitoring market. Excluding the inventory write-down, the Company's
gross margin for the quarter would have been 45.4% of current period revenue.
Gross margin percentages were also adversely affected by the addition of the
Burdick cardiology product line. While the addition of the Burdick line has had
a favorable impact on the Company's gross margin from a dollar perspective,
Burdick margins expressed as a percentage of revenue are generally below the
Company's historical margins because the products are sold through distributor
sales channels at prices that are typically lower than those available to end
users. In addition, the Company's gross margin continued to be negatively
influenced by unfavorable foreign exchange rates as well as worldwide pricing
pressures attributable to increased competition and changes in the healthcare
environment. At this time there is no evidence to suggest the aggressive
worldwide pricing trend will not continue.


Operating Expenses

Selling, general and administrative expenses increased $3.4 million from $18.9
million during the first quarter of 1997 to $22.3 million during the first
quarter of 1998. The increase is primarily related to the consolidation of
Burdick operations in current period results. Selling, general and
administrative expenses represented 33.5% of current period revenue as compared
to 29.9% during the same period a year ago. The increase reflects the impact of
lower US patient monitoring revenue relative to the fixed cost components of the
Company's investment in selling, general and administrative activities. In
addition, first quarter of 1998 expenses also include a $0.4 million charge
representing a reserve against a large receivable affected by the devaluation of
an Asian currency.

Research and development expenses were $8.4 million in the first quarter of
1998, an increase of 13.7% from the $7.4 million incurred in the same quarter
last year. This increase is primarily attributable to the investment in
cardiology product development associated with the acquisition of Burdick
operations. As a percentage of quarterly revenue, research and development
expenditures 



                                      (9)
<PAGE>   10

were 12.7% and 11.8% in 1998 and 1997, respectively, and were relatively
consistent with historic levels. The Company continued to make a substantial
investment in information systems development during the first quarter of 1998.
Management expects this investment to continue as the Company proceeds with its
transition into the software development market.


Acquisition and Restructuring Charges

During the first quarter of 1998, the Company incurred approximately $0.5
million in costs associated with a number of restructuring programs aimed at
improving the Company's fixed and variable cost structure. Management expects to
continue to incur additional restructuring charges related to these programs
during the second quarter of 1998.

In the first quarter of 1997, the Company acquired $6.5 million of in-process
research and development relating to its acquisition of Advanced Medical Systems
("AMS") located in Hamden, Connecticut.


Other Income (Expense)

During the first quarter of 1998, the Company recognized a $6.3 million gain on
the sale of 350,000 shares of its investment in Physio Control International
Corporation ("Physio") common stock, partially offset by charges primarily
related to the write-down of certain other investments.

Interest expense for the first quarter of 1998 was approximately $1.2 million as
compared to $0.3 million during the same period of the previous year. The change
is principally due to the additional interest on the loan used to finance the
acquisition of Burdick in 1997. Interest income was approximately $145,000 for
the current quarter versus $450,000 during the first quarter of 1997. The
decline in interest income reflects the reduction in available investment cash
which was primarily used during the quarter to pay down the Company's long-term
debt.

Also during the current quarter, the Company recognized a $38,000 loss from
foreign currency exchange rate fluctuations compared to a $309,000 loss in the
same quarter in the prior year. Losses in both periods reflect the impact of the
strengthening US dollar against the currencies of the Company's foreign
operations.


Taxes

The effective tax rate for the first quarter of 1998 was 36.6%. The comparative
effective tax rate for the same period of the prior year is not meaningful as
the acquired in-process research and development costs were not deductible for
tax purposes. As a result, the tax expense for the first quarter of 1997 was
approximately $1.9 million on the pretax loss of $1.3 million.





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<PAGE>   11

Net Loss

Primarily resulting from the decline in US patient monitoring revenue, the
Company incurred a net loss for the first quarter of 1998 of $0.9 million or
$0.09 per share. Net loss during the first quarter of 1997 was $3.3 million or
$0.34 per share.

Excluding the write-down of inventory, restructuring charges, and the gain on
the sale of Physio stock offset by certain investment write-downs and other
unusual charges, the net loss for the first quarter of 1998 would have been $0.7
million or $0.07 per share. In the same period of 1997, excluding in-process
research and development charges related to the acquisition of AMS, the
Company's net income would have been $3.2 million or $0.33 per share. Net income
exclusive of these unusual activities is a non-GAAP measure and investors should
not rely on it as a substitute for GAAP measures. Because such activities are
irregular in nature, management believes that a measure of net income excluding
these activities is meaningful and useful to investors as it provides an
alternative basis with which management and investors can assess the
profitability of the Company's core operations.



                          CAPITAL RESOURCES & LIQUIDITY

<TABLE>
<CAPTION>
                                                 ----------------------------------------------------
                                                   March 28,   December 26,    Dollar     Percent
(dollars in millions)                                1998          1997        Change      Change
-----------------------------------------------------------------------------------------------------
<S>                                                  <C>          <C>         <C>         <C>    
Cash and short-term investments.................     $  7.4       $ 12.9      $ (5.5)     (42.7%)

Marketable securities...........................        6.1         10.9        (4.7)     (43.5%)

Working capital.................................      104.1        120.6       (16.6)     (13.7%)

Long-term obligations...........................       52.7         66.8       (14.1)     (21.1%)

Shareholders' equity............................      161.3        164.9        (3.5)      (2.1%)

------------------------------------------------------------------------------------------------------
</TABLE>


Capital Resources and Liquidity

Cash and Working Capital

As of March 28, 1998, cash and short-term investments totaled $7.4 million
compared to $12.9 million on December 26, 1997. The short-term investment
portfolio is invested among diversified security types and issuers, and it does
not include any derivative products. Overall, working capital declined by $16.6
million during the period to $104.1 million at quarter end. In general, the
Company utilized cash and other components of working capital to reduce
long-term debt by approximately $15.2 million. Working capital also declined as
a result of the $4.0 million write-down of certain monitoring product inventory
as discussed above.




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<PAGE>   12

Cash Provided (Used) by Operating Activities

During the first quarter of 1998 the Company generated $3.8 million in cash from
operations compared to a net cash outflow from operations of $0.2 million during
the same period in 1997.

Investing Activities

Current period cash provided by investing activities included $6.3 million in
proceeds on the sale of 350,000 shares of the Company's investment in Physio
common stock. As of March 28, 1998, the Company's remaining investment in Physio
common stock totaled 355,952 shares. Management intends to continue to sell a
portion of this investment during the second quarter. During the first quarter
of 1998 the Company also invested $1.2 million in property, plant and equipment.

Financing Activities

During the quarter the Company made principal payments of approximately $15.2
million on its long-term debt, of which $13.9 million was used to reduce the
revolving debt originated in 1997. The Company also continued to make monthly
payments of $62,500 on the approximately $13.3 million of unsecured bank debt
originated in 1995.

Under the share repurchase program approved by the Board of Directors, the
Company is authorized to acquire up to three million shares of stock to service
the Company's various employee benefit plans and support any other purposes the
Company deems appropriate. During the first quarter of 1998, the Company
repurchased 18,000 shares of the Company's common stock for approximately $0.4
million. As of March 28, 1998, the Company had repurchased approximately
2,147,954 shares under the program.

Future Cash Flow and Liquidity

In addition to the approximately $26.9 million remaining available on the $35.0
million revolving credit facility, the Company also has available US unsecured
bank lines of credit totaling $11.0 million as well as several small credit
lines to meet the operating requirements of its international subsidiaries.
While the Company elected to repay approximately $13.9 million of the revolving
debt obligation during the first quarter of 1998, such repayments do not
preclude the Company from drawing upon this facility in the future to meet cash
flow needs. Management believes that existing cash and short-term investments,
marketable securities and cash flow from operations, together with available
credit lines and the revolving debt facility, will continue to be sufficient to
meet ongoing operating requirements as well as the Company's investment in
capital additions and research and development activities. In connection with
research and development, cash may be used from time to time to acquire
technology or to fund strategic ventures.


Forward Looking Information

Statements that are not based on historical facts are forward-looking statements
subject to uncertainties and risks, including, but not limited to product and
service demand and acceptance, adverse economic conditions, adverse exchange
rate fluctuations and political risks, the impact of competition and pricing,
capacity and supply constraints or difficulties, the failure to achieve product
development objectives, unanticipated costs and risks associated with Year 2000
compliance and other risks detailed in the Company's Securities and Exchange
Commission filings.



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                                    SIGNATURE


Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                                SPACELABS MEDICAL, INC.
                                                     (Registrant)


DATE:  May 8, 1998                    BY:   /s/ Carl A. Lombardi
                                         -----------------------------------
                                                 Carl A. Lombardi

                                              Chairman of the Board and
                                               Chief Executive Officer


                                      BY:   /s/ James A. Richman
                                         -----------------------------------
                                                James A. Richman

                                               Vice President and
                                               Corporate Controller



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