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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

COMMISSION FILE NUMBER 0-15160

ATL ULTRASOUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

WASHINGTON 91-1353386
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

22100 BOTHELL-EVERETT HIGHWAY 98041-3003
P.O. BOX 3003 ----------
BOTHELL, WASHINGTON (ZIP CODE)
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (425) 487-7000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE.
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

COMMON STOCK, PAR VALUE $0.01 PER SHARE
(TITLE OF CLASS)

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 [_]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrants' knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]

On February 27, 1998, the aggregate market value of the voting stock held by
non affiliates of the registrant was $648,604,001 based upon the closing sale
price of $45.50 per share on the Nasdaq National Market on such date.

Number of shares of Common Stock, $0.01 par value per share, of the
registrant outstanding as of February 27, 1998: 14,464,614.

DOCUMENTS INCORPORATED BY REFERENCE PART
----------------------------------- ----

Annual Report to Shareholders for the fiscal year
ended December 31, 1997.......................... Part II (Items 6-8)
Part IV (Item 14)
Proxy Statement for the 1998 Annual General
Meeting of Shareholders.......................... Part III (Items 10-13)

EXHIBIT INDEX IS ON PAGE 24

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ATL ULTRASOUND, INC.

TABLE OF CONTENTS

PAGE
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PART I
ITEM 1. Business....................................................... 3
ITEM 2. Properties..................................................... 14
ITEM 3. Legal Proceedings.............................................. 15
ITEM 4. Submission of Matters to a Vote of Security Holders............ 15
PART II
Market for Registrant's Common Equity and Related Shareholder
ITEM 5. Matters........................................................ 16
ITEM 6. Selected Financial Data........................................ 16
Management's Discussion and Analysis of Financial Condition and
ITEM 7. Results of Operations.......................................... 16
ITEM 7A Quantitative and Qualitative Disclosures About Market Risk..... 16
ITEM 8. Financial Statements and Supplementary Data.................... 17
Changes in and Disagreements with Accountants on Accounting and
ITEM 9. Financial Disclosure........................................... 17
PART III
ITEM 10. Directors and Executive Officers of the Registrant............. 17
ITEM 11. Executive Compensation......................................... 17
ITEM 12. Security Ownership of Certain Beneficial Owners and Management. 17
ITEM 13. Certain Relationships and Related Transactions................. 17
PART IV
Exhibits, Financial Statement Schedules and Reports on Form 8-
ITEM 14. K.............................................................. 18

PART I

ITEM 1. BUSINESS

STRUCTURE OF THE COMPANY

ATL Ultrasound, Inc. ("ATL" or the "Company") is engaged in the high-
technology medical systems business. ATL develops, manufactures, markets and
services diagnostic medical ultrasound systems and related accessories and
supplies worldwide. The Company currently operates through 14 international
affiliates and through approximately 60 local distributors worldwide.

COMPANY HISTORY

ATL was founded in 1969 when it was incorporated as Advanced Technology
Laboratories, Inc. In 1980 the Company was acquired by Squibb Corporation
("Squibb"). In 1986 Squibb organized its medical equipment businesses,
including SpaceLabs Medical, Inc. ("SpaceLabs"), a manufacturer and supplier
of patient monitoring and clinical information systems, under a corporate
holding company, Westmark International Incorporated ("Westmark) and spun the
companies off through a distribution of Westmark common stock to Squibb
shareholders on January 2, 1987. In 1992 Westmark shareholders voted to
separate Westmark into two publicly traded companies comprising two major
operating subsidiaries, ATL and SpaceLabs. Westmark shareholders received an
equal number of shares of the new separate public company, SpaceLabs, and
Westmark changed its name to Advanced Technology Laboratories, Inc., the same
name as that of its remaining operating subsidiary.

In May 1994 the Company acquired Interspec, Inc. ("Interspec"), a developer
and manufacturer of medical diagnostic ultrasound systems and transducers
headquartered in Ambler, Pennsylvania through a stock for stock exchange that
was approved by the shareholders of both companies. This acquisition added the
Apogee(R) product lines of Interspec to those of ATL, giving the Company an
expanded presence in the mid-range price and cardiology ultrasound markets.
During 1995 the Company consolidated Interspec's Ambler, Pennsylvania
operations with ATL's worldwide headquarters operations in Bothell,
Washington. In 1995 the Company reincorporated in the state of Washington from
its original domicile in Delaware. In 1997 the Company changed its name to ATL
Ultrasound, Inc. to more clearly designate the focus of the Company on medical
ultrasound. ATL conducts a substantial portion of its business through its
domestic operating subsidiary, now known as Advanced Technology Laboratories,
Inc.

In February 1996 the University of Washington and ATL announced that they
and partners VLSI Technology, Inc. and Harris Semiconductor had been awarded
funding under the Technology Reinvestment Project by the U.S. government's
Advanced Research Project Agency to develop an ultrasound diagnostic
instrument small enough to hold in one's hand for use in battlefield and
trauma situations. Work under this program commenced in June, 1996 and is
expected to culminate in the third quarter of 1998 with the delivery of
prototype handheld ultrasound systems to the U.S. Navy, which is overseeing
the program. The partners in the program will retain the rights to commercial
applications of the program's developments. In February 1997 the Company
announced that it had formed a business unit within the Company which has as
its objective the commercialization of the technology resulting from this
program. In February 1998 the Company announced that it was distributing stock
of a newly formed, independent company, SonoSight, Inc., to ATL shareholders
as a tax-free stock dividend. This new company has as its objective the
commercialization of handheld ultrasound systems in the marketplace. The
Company expects to complete this spin-off in the second quarter of 1998.

THE ULTRASOUND BUSINESS

ATL develops, manufactures, markets and services diagnostic medical
ultrasound systems that are widely used in a number of medical applications to
assist the physician in monitoring and diagnosing a variety of conditions,
such as tumors, inflammations, obstructions, cardiovascular diseases, fetal
development, and surgical assessment. A noninvasive procedure, ultrasound uses
high frequency sound waves to image the body's soft tissue, organs and blood
flow in real time. It is highly cost effective and can eliminate the need for
more invasive

and expensive procedures. ATL is one of the leading suppliers of diagnostic
ultrasound systems in the world. Its High Definition(TM) Imaging (HDI(R)) and
Apogee(R) product lines serve all major diagnostic ultrasound clinical
markets--radiology, cardiology, obstetrics/gynecology ("OB/GYN") and vascular
medicine--and a variety of newly emerging clinical markets such as
musculoskeletal diagnosis. These product lines span a range of system prices
from mid to premium priced ultrasound products.

Diagnostic ultrasound products, upgrades and accessories sold for use in
hospitals, clinics and physicians' offices accounted for an estimated $2.5
billion worldwide market in 1997. The total medical imaging market, including
x-ray, MRI and CT imaging equipment is estimated by the Company to be over $8
billion worldwide in 1997.

ULTRASOUND TECHNOLOGY

ATL's Technology

The Company believes that it has become a worldwide leader in ultrasound
technology through its proprietary position in digital, broad bandwidth
beamforming, advanced software, and broad bandwidth scanhead technologies.
Ultrasound systems include three major components: a scanhead which transmits
sound waves into the body of a patient, receives returning echoes from the
patient and converts the echoes into electrical signals; a processing unit
which processes the electrical echo signals into images and measurements of
physiological conditions within the patient's body; and a monitor which
displays the resulting images or measurement information. ATL's scanheads are
characterized by the breadth of the bandwidth of ultrasonic signals which are
transmitted and received. ATL's HDI systems are characterized by their ability
to fully process broadband signals characteristic of the body's tissues
digitally. ATL has been a pioneer in digital ultrasound technology and
introduced the industry's first digital beamforming processor in 1988. In
February 1997 ATL introduced the HDI 1000 system, which combines ATL's core
technologies in broadband scanheads, digital beamforming, and advanced
proprietary software to form a software-based color system for the world's
rapidly growing mid-range markets. In July 1997 ATL introduced its fifth
generation digital ultrasound system to the premium ultrasound market, the HDI
5000 system.

ATL'S PRODUCTS

HDI 5000 ULTRASOUND SYSTEM. In July 1997 ATL introduced its fifth generation
digital ultrasound system, the HDI 5000(TM) system, for the premium ultrasound
market. The HDI 5000 system is believed to be the world's most powerful
ultrasound system, capable of performing over 14 billion operations per
second, yet is the same physical size as ATL's previous premium performance
product, the HDI 3000 system. The new system incorporates a new, more powerful
digital beamformer incorporating four new ASICs (Application Specific
Integrated Circuits) which make possible ATL's MicroFine(TM) Grayscale Imaging
that provides more subtle tissue information and significantly reduced dot
size. At the heart of the HDI 5000 system is a patented new Doppler processor
which employs multi-dimensional broadband flow processing to provide new
levels of flow sensitivity for deep and small vessels. The HDI 5000 system
uses existing HDI scanheads and also operates with three new high-performance
broadband scanheads. The HDI 5000cv model of this new system provides advanced
performance for the premium cardiology market. The HDI 5000 and 5000cv systems
are both available as new ultrasound systems or as on-site upgrades to the HDI
3000 system worldwide, a uniquely flexible option for existing ATL customers.
The HDI 5000 system has been selected by NASA for launch on the International
Space Station in the year 2001, where the system will be operated by
astronauts to diagnose the effects of weightlessness and other characteristics
of spaceflight on the human body.

HDI 3000 ULTRASOUND SYSTEM. In October 1994 ATL introduced its fourth
generation digital ultrasound system, the HDI 3000(TM) system. The HDI 3000
system is designed to address the economic imperatives of an evolving health
care environment in the United States and international markets. It is lighter
in weight than competitive high performance systems, providing greater
mobility and enabling it to be easily moved to the bedside of critical care
patients. The HDI 3000 system also features an intuitive, ergonomically
designed set of user controls, which enable an ultrasonographer or physician
to quickly gain confidence in operating the system and performing highly
diagnostic examinations. The HDI 3000 system provides interactive menu screens
with

diagnostic applications selectable at the touch of a button. This feature,
called Tissue Specific(TM) Imaging, automatically optimizes over one thousand
system operating parameters for the selected diagnostic examination and
scanhead. The HDI 3000 system offers full Doppler capability including Color
Power Angio(TM) imaging features, Power Motion Imaging(TM) for cardiac
applications, Contrast Specific Imaging(TM) for harmonic imaging and imaging
with ultrasonic contrast agents, and three dimensional imaging of the human
vasculature. In March, 1997 ATL introduced Tissue Harmonic Imaging, a feature
derived from the Company's early research in imaging with harmonic contrast
agents, which reduces near field clutter in cardiac and deep abdominal images.
The HDI 3000 system operates with a full array of broad bandwidth scanheads,
including a family of Entos intraoperative scanheads designed for surgical
use, the diagnosis of breast disease and musculoskeletal injuries.

The HDI 3000 system can be purchased in a variety of configurations for
specific clinical applications, including a fully configured model for the
cardiovascular market, the HDI 3000cv system.

In April, 1996 the U.S. Food and Drug Administration (FDA) approved ATL's
breast premarket approval application (PMA) for the HDI system. This approval
allows a new clinical application of ultrasound that, in conjunction with
mammography, will provide physicians with a high level of confidence in
differentiating benign from malignant or suspicious breast lesions. Studies
have shown that approximately 80% of breast lump biopsies performed in the
United States have resulted in a finding that the lump is benign. The PMA
application was based on the results of an international multi-center study
involving the examination of women with indeterminate lesions with the
Ultramark 9 HDI system. In December, 1996 the FDA approved a PMA supplement
which allows the HDI 3000 system to be marketed for this new application. ATL
has equipped the HDI 3000 to perform examinations in accordance with the new
protocol through the introduction of a new breast analysis package for the
system, which was introduced in the fall of 1996.

HDI 1000 ULTRASOUND SYSTEM. In February 1997 ATL introduced the HDI 1000
system, a mid-range grayscale, color and Doppler product for the general
imaging and OB/GYN markets. This system makes many features of high
performance ultrasound systems affordable to a broad range of potential
customers through advanced software implementation: the system replaces over
50% of the hardware of a conventional ultrasound machine with software which
performs over 70% of the functions of the ultrasound system. At the heart of
this software-intensive system is ATL's proprietary Multitasking Software
Management technology (MSM(TM)), which utilizes an "object-oriented" software
architecture to perform self-contained software tasks which replace
conventional ultrasound hardware.

The HDI 1000 system is also unique among mid-range ultrasound products for
its broad range of communication capabilities. The HDI 1000 system's MSM
technology comes equipped for remote Internet/Intranet access to images and
reports stored in the system's memory. ATL's patented WebLink(TM) feature
enables physicians to simultaneously view images on the system and consult
with colleagues around the globe directly from the HDI 1000 system. The system
can even be remotely controlled through secure Web pages transmitted over the
Internet. The fully integrated communication capabilities enable patient
reports and ultrasound images to be printed directly on standard desktop
printers.

The HDI 1000 system utilizes scanheads of the other ATL HDI systems and the
ease of control of HDI Tissue Specific(TM) Imaging, enabling existing ATL
customers to apply their existing HDI scanheads and previously acquired
operating skills directly to the HDI 1000 system.

APOGEE 800PLUS SYSTEM. In 1994 the Company introduced the mid-range Apogee
800 system for the mid-range radiology and internal medicine markets. The
Apogee 800 system offers features normally found on high performance systems
and can be configured to address the broad array of clinical needs of the
radiologist, internal medicine specialist, and OB/GYN physician. In 1996 ATL
introduced an upgraded model of this product, the Apogee 800PLUS, offering
improved image quality, Doppler performance, processing capability, improved
analysis packages and user controls. The Apogee 800PLUS system is available in
a full cardiology configuration with three convex phased array scanheads, the
4-2C15 adult cardiology probe, the 6-3C13 small adult cardiology probe, and
the 8-5C11 pediatric cardiology probe, and integrated stress echo capability.

In September, 1996 the Company announced that it had entered into a
technology transfer agreement with the Shantou Institute of Ultrasonic
Instruments (SIUI), whereby SIUI will manufacture Apogee 800PLUS systems in
the People's Republic of China. SIUI also acquired the exclusive right to
distribute the Apogee 800PLUS system in that country. The Company completed
this technology transfer in 1997. ATL continues to manufacture the Apogee
800PLUS system in Bothell, Washington for worldwide distribution outside of
China.

IMAGE MANAGEMENT PRODUCTS. In February 1997 the Company announced that it
had entered into a memorandum of understanding to sell its Nova MicroSonics
division to the Eastman Kodak Company ("Kodak"), which is establishing a
worldwide presence in multi-modality image management. The Nova MicroSonics
division manufactured and marketed networking, image acquisition and
measurement products for use in ultrasound data and image management by
hospitals, labs, clinics and physician offices. ATL had been working
cooperatively with Kodak for a number of years in ultrasound image management
product performance and distribution. The Company completed this transaction
in May, 1997. The Company continues to work closely with Nova MicroSonics as a
division of Kodak in the development and distribution of image management
products. The transaction did not result in a material gain or loss to the
Company.

SCANHEADS. ATL believes that its internal resources devoted to development
and manufacture of ultrasonic scanheads make it one of the largest ultrasound
scanhead manufacturers in the world. ATL's capabilities in scanhead design and
manufacture were enhanced in 1994 with the addition of the Echo Ultrasound
division of Interspec, located in Reedsville, Pennsylvania. The Reedsville
site now develops and manufactures scanheads for ATL products and also offers
scanheads to other ultrasound companies.

ACCESSORIES AND SUPPLIES. The Company sells a variety of ultrasound
accessories and supplies, most of which are not manufactured by the Company.
These include disposable supplies, such as ultrasound gel and thermal paper,
and accessories, such as biopsy guides, printers, cameras and videocassette
recorders ("VCRs"). The Company markets these products through direct sales,
mail and its customer support organization.

PRINCIPAL MARKETS

The worldwide ultrasound market is typically categorized by clinical
application, price range and geographic area.

CLINICAL APPLICATIONS. Ultrasound products are used in four primary medical
applications: radiology, cardiology, OB/GYN, and vascular applications. ATL
also sells its products in several emerging clinical application markets,
including breast and musculoskeletal applications and the surgical ultrasound
market.

Radiology. The radiology, or general imaging, application, at approximately
49% of the worldwide ultrasound market, is the largest market for ultrasound
equipment. The major radiology markets are in the United States, Japan and
Europe. Most radiology examinations are conducted in hospitals or large
imaging centers.

In radiology, ultrasound is used to obtain diagnostic information on organs
and soft tissue, particularly in the abdominal area. It is also used to
ascertain fetal development, to guide tissue biopsies and to visualize blood
flow.

A substantial portion of the radiology market also requires systems which
include cardiac imaging capabilities. In the United States and Canada this
market segment is often referred to as the shared service market. Most
community or small hospitals without a dedicated cardiology department fall
into this category. In Europe, the internal medicine or shared services
segment requires systems which include cardiac imaging capability.

ATL's radiology product offerings include the premium HDI 5000 system, the
high performance HDI 3000 system, the mid-range HDI 1000 system, and the
Apogee 800PLUS system.

Cardiology. The cardiology ultrasound, or echocardiography, application, at
approximately 29%, is the second largest market for ultrasound systems. Most
dedicated echocardiography system sales occur in the United States, Western
Europe, and the more developed Asian and Latin American markets. While most
cardiology system sales are to hospitals, the cardiology office practice
represents a significant and growing share of the market for echocardiography
equipment.

Cardiologists use ultrasound as a noninvasive means of capturing real-time
images of the heart and its valves. These images, together with various
Doppler techniques, help the physician assess heart function as well as
congenital and valvular disease. With new advances in scanheads plus
acquisition and image display technology, echocardiography is a useful tool
for the detection and assessment of coronary artery disease. Ultrasound has
also been shown to be valuable in assessing the effectiveness of drug therapy
and intervention for the heart attack patient.

In 1996 ATL became the first ultrasound company to introduce the integrated
capability to image harmonic and other ultrasonic contrast agents in the HDI
3000cv system. It is anticipated that this emerging application will gain
increasing prominence as contrast agents become more widely available around
the world and cardiologists become more familiar with their application and
use.

ATL's cardiology product offerings include the HDI 5000cv system, the HDI
3000cv system and the Apogee 800PLUS system.

OB/GYN. The third largest market for ultrasound systems is the OB/GYN
application, at approximately 15%. The majority of OB/GYN ultrasound system
sales are to office-based practitioners in the United States, Western Europe,
and the more developed Asian markets. Perinatology is a clinical specialty in
OB/GYN dedicated to high risk obstetrics. Most perinatology ultrasound sales
are to hospitals and institutions in the United States. Ultrasound is the
preferred imaging technology for the assessment of fetal development since it
is noninvasive and involves no ionizing radiation. Ultrasound is also used for
general gynecological and infertility examinations. The introduction of the
intravaginal scanhead in the 1980s expanded the usefulness of ultrasound for
first-trimester obstetrical studies and the diagnosis of ectopic pregnancies.

ATL's OB/GYN product offerings include the HDI 5000 and HDI 3000 systems for
perinatology, and the HDI 1000 system and the Apogee 800PLUS system for all
OB/GYN applications and markets.

Vascular. The smallest of the primary clinical markets for ultrasound
systems, at approximately 7%, is the vascular ultrasound application,
primarily practiced in the United States and Western Europe. Most vascular
ultrasound examinations are performed in hospitals.

Vascular ultrasound studies utilize real-time imaging, Doppler and color
Doppler information to identify plaque deposits and their characteristics,
clots, and valve competence in blood vessels. Most vascular examinations are
performed on the body's extremities, cerebrovascular and deep abdominal
regions.

ATL's vascular product offerings include the HDI 5000, the HDI 3000 and the
Apogee 800PLUS systems. The Entos CL10-5 intraoperative scanhead was specially
designed for vascular surgery, and addresses the increasing use of ultrasound
in the surgical suite to immediately assess the results of surgical
procedures.

Emerging applications. Other specialized applications for ultrasound
products, such as breast disease, musculoskeletal, and surgery, are included
in the above market percentages. ATL provides the HDI 3000 and HDI 1000
systems with the L10-5 and Entos CL10-5 scanheads for breast clinics and
orthopedic and sports medicine clinics, and with the Entos CL10-5, CT8-4 and
LI9-5 intraoperative scanheads for surgical suites. The HDI 3000 system is
available with the LLI9-5 laparoscopic probe for minimally invasive surgery,
and with harmonic and contrast agent imaging capability for emerging
applications of contrast agents in both radiology and cardiology.

PRICE RANGES. The world ultrasound market can be divided into five segments
based on broad price ranges. Each market segment is characterized by the level
of system performance and the number of scanheads and system features.

Premium Performance. The premium market segment, comprising about 18% of the
world market for ultrasound products, is characterized by ultrasound systems
that typically sell for over $160,000 per unit. These systems provide the
physician with superior definition of subtle tissue characteristics and
incorporate high resolution gray scale imaging, advanced color velocity,
power, and spectral Doppler capability, image acquisition storage, display and
review capability, advanced automation capabilities, and other features
providing additional clinical utility such as Tissue Harmonic Imaging and
three dimensional imaging. Typically, systems sold in the premium market are
equipped with a wide variety of specialty scanheads. The HDI 5000 and the HDI
5000cv systems are ATL's premium performance products.

High Performance. The high performance market, comprising about 30% of the
world ultrasound market, is characterized by systems with high resolution gray
scale imaging and advanced color velocity, power and spectral Doppler
capabilities. Systems in this market segment sell between $100,000 and
$160,000 per unit and generally include advanced measurement and analysis
software, image review capabilities, and a variety of scanhead offerings. ATL
sells the HDI 3000 system and fully configured HDI 1000 systems in this market
segment.

Mid-Range. The mid-range market segment, comprising about 28% of the world
ultrasound market, is characterized by ultrasound systems that sell between
$50,000 and $100,000 per unit. These units are basic gray scale imaging, color
and spectral Doppler systems used for routine examinations and reporting and
utilize a minimum number of scanheads. Many of these systems are sold to small
hospitals and clinics and are used in radiology, cardiology and OB/GYN
applications. Refurbished premium and high performance systems with fewer
purchased optional features are also sold in this price range. ATL's products
in this market segment include the HDI 1000 system and the Apogee 800PLUS
system.

Low-End. The low-end market segment makes up the remaining 24% of the market
and is characterized by basic black and white imaging systems that sell below
$50,000 per unit. These systems provide limited diagnostic information and are
used primarily for monitoring fetal development and in other basic radiology
and OB/GYN applications. Most of these systems are sold to private office
practitioners and small hospitals. Due to the growing acceptance and
affordability of color Doppler systems, units with only greyscale capability
represent the slowest growing portion of the market. ATL does not presently
compete in this market segment.

GEOGRAPHIC AREAS. The ultrasound market is divided into four major
geographic markets.

North America. The United States and Canada together comprise about 34% of
the world ultrasound market. This market traditionally has been characterized
by its emphasis on high performance systems driven by competition for patient
referrals. These factors encourage the rapid adoption of new technology. Over
the past four years, the emphasis in the United States has turned to more
efficient health care delivery and managed care, and been marked by
considerable consolidation of health care organizations. The predominately
western trend toward managed care has now begun to manifest itself strongly in
the eastern U.S., creating new uncertainties among healthcare buyers. With
consolidation and economic pressures, the U.S. market has become increasingly
value conscious while the installed base of ultrasound technology has
continued to age as a whole. In 1997, following several years of stagnant
growth, the U.S. market began to manifest signs of new growth, spurred by the
introduction of premium ultrasound systems by a number of manufacturers and
the desire to replace aging equipment with up-to-date technology.

Europe. The European market, at 35% of the market, is the largest regional
market for ultrasound systems. European health care systems are more
centralized than the United States market and are often subject to more rigid
governmental regulation. The more regulated character of health care in Europe
provides more stability to the European markets than is evident in the U.S.
during economic cycles of growth and contraction. Value

consciousness and state regulated health care has been characteristic of
European markets for a number of years, unlike the United States where these
effects are of relatively recent origin. In 1997 the European markets were
highly competitive and many U.S.-based manufacturers were disadvantaged in
Europe by the strengthening of the U.S. dollar.

Japan. This market accounts for approximately 11% of worldwide ultrasound
sales. Its complex distribution system is highly competitive and Japanese
manufacturers account for almost all sales. In 1996 ATL began to experience an
emerging market presence in Japan through the efforts of Hitachi Medical
Corporation (HMC), ATL's exclusive distributor in the Japanese market. The HDI
5000 system was introduced in the Japanese market in February 1998, joining
the HDI 3000 system as ATL's product offerings in that market.

Asia Pacific and Latin America. The remaining geographic areas of the world
account for approximately 20% of the market, and are among the world's fastest
growing markets for ultrasound. The Australian market is similar in structure
to many European countries. Parts of Asia and Latin America represent some of
the fastest growing areas for high performance and mid-range ultrasound
products. Many of the newly developing countries in these regions are devoting
substantial resources to building a health care infrastructure. Many
ultrasound systems sold in these regions are mid-range systems, refurbished
systems or new low-priced Japanese systems.

RESEARCH AND DEVELOPMENT

The high technology ultrasound business is characterized by rapidly evolving
technology, resulting in relatively short product life cycles and continuing
competitive pressure to develop and market new products and new features for
existing products. Although the Company intends to continue extensive research
and development activities, there can be no assurance that it will be able to
develop and market new products on a cost-effective and timely basis, that
such products will compete favorably with products developed by others, or
that the Company's existing technology will not be superseded by new
discoveries by competitors.

In August 1996 the Company jointly announced with Vital Images, Inc. that
the two companies had entered into agreements for the exclusive development
and marketing of 3D ultrasound imaging products utilizing Vital Images' volume
rendering technology. Under the agreements Vital Images will receive royalties
on ATL sales of the jointly developed products. The first product resulting
from this collaboration, the Advanced 3DI(TM) system, was introduced by ATL in
December 1997. The Advanced 3DI system operates interactively with ATL's new
HDI 5000 system which provides acquisition of ultrasound data for three
dimensional images. The HDI 5000 system also features fully integrated three
dimensional Color Power Angio(TM) imaging, first introduced by ATL on the HDI
3000 system in 1995, and also offers Integrated 3D Grayscale imaging, which
was introduced on the HDI 5000 system in December 1997.

MANUFACTURING

The Company manufactures its ultrasound system products at its facility in
Bothell, Washington. Scanheads for ATL products are manufactured in both
Reedsville, Pennsylvania and Bothell, Washington. Reedsville also manufactures
certain specialty scanheads for other ultrasound companies and users.

The Company purchases certain unique scanheads from original equipment
manufacturers. The Company also purchases the hard-copy output devices sold
with its ultrasound systems, such as VCRs and cameras, and other materials and
component parts. The OEM scanheads purchased by ATL could be manufactured by
ATL, and many of the materials and components used by ATL in the manufacture
of ultrasound equipment are available from more than one source of supply.
Certain components, however, are single sourced, such as crystals and
integrated circuits which are critical to the quality and manufacture of
ultrasound equipment. Vendors can also experience difficulty in meeting
quality standards the Company requires of its vendors. While any of these
single-source items could be replaced over time, abrupt disruption in the
supply of a single-source part could have a material adverse effect on ATL's
manufacture of the products relying on such items. In addition, these items
generally have long order lead times, restricting the Company's ability to
respond quickly to changing market conditions.

Manufacturing efforts can also be impeded by third party assertions of
patent infringement by the Company's products. There can be no assurance the
Company will not be subject to claims of patent infringement by other parties
or that such claims will not require the Company to pay substantial damages or
delete certain features from its products or both. See ITEM 3, Legal
Proceedings, below.

SALES AND MARKETING

The Company's sales and marketing strategy has been to compete in all of the
major clinical, price and geographic segments of the ultrasound market with
the exception of the very low priced market segment. In the United States, the
Company markets its products through its direct sales organization. The United
States general imaging sales organization is organized into two geographic
zones, each staffed with regional management, sales representatives and
clinical application specialists knowledgeable in radiology, OB/GYN, and
peripheral vascular applications. A specialized sales force with its own
clinical application specialists offers the Company's cardiology products to
customers in the United States. The role of the application specialists is to
demonstrate the products and train customers in their clinical use.

The Company markets its products internationally through its direct sales
and service operations in Argentina, Australia, Austria, Belgium, Canada,
China, France, Germany, India, Italy, the Netherlands, Sweden, the United
Kingdom and Singapore. In addition, the Company markets its products in India
through a joint venture with Indchem Electronics. Other principal markets are
covered through a distributor network. European, Middle Eastern and African
distributors are managed through ATL's offices in Germany. Distributors
serving the Pacific Rim countries are served by ATL's office in Singapore.
Latin American and South American distributors are supported by ATL's U.S.
offices. Customers outside of the United States accounted for 49% of revenues
in 1997.

The Company's marketing efforts emphasize the development of strong
relationships with key medical professionals, participation in national and
regional meetings and conventions for physicians and hospitals, direct mail
advertising, journal advertising and sponsorship of educational programs.

CUSTOMER SUPPORT AND WARRANTY

The Company warrants its new and used products for all parts and labor
generally for one year from the date of original delivery. The Company offers
a variety of post-warranty service agreements permitting customers to contract
for the level of equipment maintenance they require. Alternatively, customers
can contact ATL as needed and receive service at rates based on labor and cost
of parts. The Company's warranty costs are included in cost of product sales.
See ITEM 8, Financial Statements and Supplementary Data.

The Company maintains its own customer support organization in the United
States and other countries where the Company has direct operations. Local
dealers and distributors provide service and support in other countries. The
Company provides manuals and expedites delivery of repair parts to all
geographic locations from its facility in Bothell, Washington, with the
assistance of its direct operations in Europe.

The Company's customer service organizations are an integral part of its
sales effort because a customer's decision to purchase a particular product is
based in part on the availability and reputation of the service for that
product. In addition, the customer service organization sells and installs
upgrades for existing customers and provides training for biomedical
technicians so customers can service their own systems. The customer education
organization provides customer education programs on clinical applications and
the use of the Company's products.

COMPETITION

The ultrasound market is highly competitive. The Company competes worldwide
in the major clinical applications of the ultrasound market, in the mid and
upper price ranges and in each major geographic market.

Four companies--Toshiba Corporation's Medical Systems Group, ATL, Hewlett-
Packard Company's Medical Products Group and Acuson Corporation--account for
approximately 60% of the worldwide ultrasound market. The Company believes
that these four companies have similar market shares. Toshiba, ATL, and Acuson
participate in all of the major clinical ultrasound markets. Hewlett-Packard
holds the largest individual market share in the cardiology market and also
distributes a mid-range general imaging product. General Electric Medical
Systems, Inc. (GEMS) and Siemens Medical Systems, Inc., both of which have
extensive businesses in other medical imaging modalities, have in recent years
devoted increasing resources to development of their medical ultrasound
businesses. GEMS has recently announced plans to acquire the ultrasound
businesses of Elbit Ultrasound, which operates principally through
subsidiaries Diasonics and Vingmed Sound.

The year 1997 was marked by major new product offerings by the Company and
Hewlett-Packard, continuing a trend which began in 1995. The many new product
offerings in recent years have made the ultrasound market even more
competitive than in the past, as customers have an even broader range of
products from which to choose. The breadth of new products from many companies
appears to have lengthened the time required for customers to make decisions
to purchase, since customers have many more products to consider before making
a purchase decision. Virtually all of the recent competitive product offerings
are based upon digital technology to varying degrees, as competitors attempt
to position their new products as comparable to those of ATL, which pioneered
digital ultrasound systems over a decade ago.

Many of the Company's major competitors, such as Hewlett-Packard Company's
Medical Products Group, Toshiba' Medical Systems Group, General Electric
Medical Systems, the Diasonics subsidiary of Elbit, Inc., and Siemens Medical
Systems, are divisions or subsidiaries of companies much larger than ATL. GEMS
and Siemens, as well as Toshiba and others, have multi-modality medical
imaging product offerings, including MRI, CT, nuclear medicine and x-ray
products in addition to ultrasound. These companies and several of the
Company's other competitors have far greater financial, marketing, servicing,
technical and research and development resources than those of the Company,
and are able to support and sustain their efforts in the ultrasound market
with resources derived from other imaging modalities and businesses.

In the spin-off of SonoSight, Inc., the Company's handheld ultrasound
division, the Company has agreed that it will not enter the handheld
ultrasound business for the next five years, a business generally defined as
ultrasound systems weighing ten pounds or less. ATL does have a license to use
SonoSight developments of the next three years in its non-handheld business
and SonoSight has corresponding rights to ATL developments in its handheld
business.

The Company believes that significant competitive factors in the diagnostic
ultrasound market include the clinical performance of systems, cost
effectiveness of products, reputation for technology leadership,
upgradeability to advanced features, availability of Company-provided purchase
financing, reliability, ease of use and price of products and service. See
"Research and Development." The Company believes that it presently competes
favorably with respect to each of these competitive factors, however, there
can be no assurances that the Company will be able to fully respond to
competitive inroads by companies with far greater resources than ATL.

Ultrasound is only one of a number of diagnostic imaging technologies
currently available, including conventional x-ray, angiography, CT, magnetic
resonance imaging and P.E.T. A development in another diagnostic technology or
declining prices for these other products which bring them into the range of
price competition with ultrasound could adversely affect ATL and the
ultrasound industry.

PATENTS, TRADEMARKS AND LICENSES

The Company has obtained patents on certain of its products and has applied
for patents which are presently pending. The Company has also sought trademark
protection for the brand names of the products it currently markets. There can
be no assurance that any additional patents will be issued or that trademark
protection will be granted and maintained.

Certain critical technology incorporated in the Company's products,
including software algorithms, broad bandwidth scanhead technology and ASIC
(Application Specific Integrated Circuit) technology, is protected by
copyright laws and confidentiality and licensing agreements. The Company's
proprietary digital beamformers are protected by confidentiality agreements,
patents, copyright and trade secret law. There can be no assurances that these
modes of intellectual property protection will continue to maintain the
proprietary aspects of ATL's technology.

Companies in high technology businesses routinely review the products of
others for possible conflict with their own patent rights. The Company has
from time to time received notices of claims from others alleging patent
infringement. While the Company believes that it does not infringe any valid
patent of any third party, there can be no assurance that the Company will not
be subject to future claims of patent infringement or that any claim will not
require the Company to pay substantial damages or delete certain features from
its products or both. While such claims could temporarily interrupt the
Company's ability to ship affected products, the Company believes that any
such interruption can be overcome by technical changes to product features.
See ITEM 3, Legal Proceedings, below.

GOVERNMENTAL REGULATION

Product Regulation. The Company's products are subject to extensive
regulation by numerous governmental authorities, principally the U.S. Food and
Drug Administration ("FDA") and corresponding state and foreign agencies, and
to various domestic and foreign electrical safety and emission standards. The
FDA has broad regulatory powers with respect to preclinical and clinical
testing of new medical products and the design, manufacturing, marketing and
advertising of medical products. The Company's product development processes,
manufacturing facilities, and the manufacture of its products are subject to
FDA regulations respecting registration of manufacturing facilities and
compliance with the FDA's Quality System Regulations ("QSRs"). The Company is
also subject to periodic on-site agency inspection for compliance with such
regulations. The Company's ability to obtain timely FDA export and new product
approvals is dependent upon the results of such inspections. In January, 1997
the FDA concluded a comprehensive inspection of the Company's Bothell,
Washington facilities and all Company products as a part of the approval
process for ATL's breast PMA supplement for the HDI 3000 system. The FDA has
notified ATL that the Company has satisfied the requirements of this
inspection.

The FDA requires that all medical devices introduced to the market be
preceded either by a premarket notification clearance order under Section
510(k) of the Federal Food, Drug and Cosmetic Act, as amended (the "FDC Act"),
or an approved PMA application. A 510(k) premarket notification clearance
order indicates FDA agreement with an applicant's determination that the
product for which clearance has been sought is substantially equivalent to
medical devices that were on the market prior to 1976 or have subsequently
received clearance. An approved PMA application indicates that the FDA has
determined that the device has been proven, through the submission of clinical
trial data and manufacturing quality assurance information, to be safe and
effective for its labeled indications. The process of obtaining 510(k)
clearance typically takes approximately six to nine months, while the
premarket approval application process typically lasts more than a year. All
of ATL's current products have 510(k) clearance and additionally, the HDI 3000
system is cleared to be marketed under ATL's breast PMA application.

The Company believes that its products comply generally with applicable
electrical safety standards, such as those of Underwriters Laboratories and
non-U.S. safety standards authorities. Several countries have in recent years
changed the electronic emission requirement which must be met by ultrasound
equipment. There can be no assurances that the Company will be able to
continue to respond to these continually changing regulatory requirements in a
timely manner.

The Company's regulatory compliance programs have been expanded to encompass
verification of the Company's compliance with international quality standards
for medical device design, manufacture, installation, and servicing known as
ISO 9001 standards. All of the Company's manufacturing facilities have
qualified for

ISO 9001 registration. In addition, several of the Company's international
sales and service subsidiaries received certification under the ISO 9002
standards for sales and service entities. ISO 9001 standards and related
medical device directives will become mandatory in Europe in June 1998. The
FDA has adopted the ISO 9001 standards as regulatory standards for the United
States in the form of the new QSR requirements, which go into effect in June
1998.

ATL's HDI and Apogee products have received the European Community (CE) mark
in Europe. The CE mark means that the HDI products satisfy the regulatory
requirements of all of the countries of the European community, enabling the
product to be freely marketed throughout Europe. The CE mark will be required
to market products in Europe beginning in 1998.

Federal, state and foreign regulations are constantly undergoing change. The
increasing attention given to the national health care legislation has caused
U.S. ultrasound customers to become more cautious in making expenditures and
investing in capital equipment. In addition, the U.S. health care system has
undergone significant consolidations and restructuring in recent years. The
Company cannot predict what effect, if any, such change may have on its
business, or when the deleterious effect of these conditions on its business
will change.

Reimbursement. The Company's products are used by health care providers for
diagnostic testing services and other services for which the providers may
seek reimbursement from third-party payers, principally in the United States,
Medicare, Medicaid and private health insurance plans. Such reimbursement is
subject to the regulations and policies of governmental agencies and other
third-party payers. For example, the Medicare program, which reimburses
hospitals and physicians for services provided to a significant percentage of
hospital patients, places certain limitations on the methods and levels of
reimbursement of hospitals for procedure costs and for capital expenditures
made to purchase equipment, such as that sold by the Company. The Medicare
program also limits the level of reimbursement to physicians for diagnostic
tests. The state-administered Medicaid programs and private payers also place
limitations on the reimbursement of both facilities and physicians for
services provided in connection with diagnostic and clinical procedures.
Reduced governmental expenditures in the United States and many other
countries continue to put pressure on diagnostic procedure reimbursement. The
Company cannot predict what changes may be forthcoming in these policies and
procedures, nor the effect of such changes on its business.

Third-party payers worldwide, including governmental agencies, are under
increasing pressure to contain medical costs. Limits on reimbursement or other
cost containment measures imposed by third-party payers may adversely affect
the financial condition and ability of hospitals and other users to purchase
products, such as those of the Company, by reducing funds available for
capital expenditures or otherwise. The Company is unable to forecast what
additional legislation or regulation, if any, relating to the health care
industry or third-party reimbursement may be enacted in the future or what
effect such legislation or regulation would have on the Company.

Environmental. The Company is subject to Federal, state and local provisions
regulating the discharge of materials into the environment or otherwise for
the protection of the environment. Although the Company's current operations
have not been significantly affected by compliance with environmental laws or
regulations, Federal, state and local governments are becoming increasingly
sensitive to environmental issues, and the Company cannot predict what impact
future environmental regulations may have on its operations.

EMPLOYEES

As of December 31, 1997, the Company had 2,669 employees worldwide. None of
the Company's United States employees are covered by collective bargaining
agreements, and the Company considers its employee relations to be
satisfactory.

FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES

Information set forth in "Geographic Segment Information" of the Notes to
the Consolidated Financial Statements contained in Note 20 on page 30 of the
1997 Annual Report to Shareholders is incorporated by reference herein.

EXECUTIVE OFFICERS OF THE REGISTRANT

Set forth below is information concerning certain officers of the Company
who are not Directors.

Donald D. Blem. Mr. Blem has served as Senior Vice President, Operations
since October 1993. He served as Vice President, Operations from February 1988
to October 1993.

Castor F. Diaz. Mr. Diaz has served as Senior Vice President, Worldwide
Sales and Marketing, since February 1995 and as Vice President, ATL Europe
from October 1988 to February 1995. He also held various sales and marketing
positions with ATL from May 1987 to October 1988.

Pamela L. Dunlap. Ms. Dunlap has served as Senior Vice President, Finance
and Administration, and Chief Financial Officer since February 1998. She
served as Vice President and Treasurer of the Company from May 1996 to
February 1998, and as Treasurer of the Company from August 1995 to May 1996.
From 1992 until August 1995 Ms. Dunlap served as Assistant Treasurer. Prior to
that time, she held various financial and administrative positions since
joining ATL in March 1987. Prior to joining ATL, Ms. Dunlap was an auditor
with Arthur Andersen and Company.

Jacques Souquet, Ph.D. Dr. Souquet has served as Senior Vice President,
Product Generation since October 1993. He served as Vice President, Product
Generation from October 1992 to October 1993, as Vice President, Strategic
Marketing and Product Planning from July 1990 to October 1992 and as Director
of Strategic Marketing and Product Planning from March 1989 to June 1990.

ITEM 2. PROPERTIES

The Company owns two buildings on the corporate campus at 22100 Bothell
Everett Highway, Bothell, Washington 98021, consisting of 365,000 square feet
and is presently constructing a third building of 101,000 square feet which it
expects to occupy during the third quarter of 1998. These buildings include
the Company's corporate headquarters and its major manufacturing facility, as
well as the Company's research and development, sales, service, marketing and
administrative functions. The Company also leases space in several buildings
in nearby business parks.

The Company's Reedsville facility occupies 63,000 square feet in a building
owned by the Company in Reedsville, Pennsylvania. ATL continues to own a
building of 70,000 square feet in Ambler, Pennsylvania, which is occupied by
the Company's cardiology sales organization. The unused space in the Ambler
building is currently listed for lease.

The Company's direct business operations in the United States and other
countries lease office and warehouse space in their respective countries.

There are no significant unutilized facilities for ongoing operations, other
than those discussed above, and the Company believes its existing facilities
are sufficient to meet its near-term operating requirements.

ITEM 3. LEGAL PROCEEDINGS

The Company is subject to various claims and other proceedings which arise
in the ordinary course of its businesses and believes that such proceedings,
individually or in the aggregate, will not have a material adverse effect on
the business or financial condition of the Company. Insured claims arising
from ATL's businesses are covered by the Company's insurance policies. The
Company intends to maintain insurance coverage against business risks at
levels that take into account the nature and magnitude of the respective
businesses to be conducted by ATL. There can be no assurance that the
Company's current insurance coverage will prove adequate or that the amount or
type of coverage available to the Company will remain available on a cost-
effective basis.

In May 1996, a U.S. District Court in California ordered the Company to pay
damages in the amount of $27.9 million together with interest, costs and
attorney fees on a patent infringement claim by SRI International, Inc.
("SRI") relating to an electrical circuit alleged to be used in several of the
Company's discontinued products. The patent expired in 1994. In September 1997
the Federal Circuit Court of Appeals in Washington, D.C. upheld the decision
of the District Court. The Company completed payment of the assessed damages
and the supersedeas bond was released in the fourth quarter of 1997. The
Company accrued a provision in 1996 for the full amount of the damages awarded
and accrued interest during the appeal process. See Note 10 of the Notes to
the Consolidated Financial Statements on page 24 of the 1997 Annual Report to
Shareholders incorporated by reference herein. There can be no assurance the
Company will not be subject to claims of patent infringement by other parties
or that such claims will not require the Company to pay substantial damages or
delete certain features from its products or both.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

Market and Market Price for Common Stock. The Company's Common Stock, $0.01
par value, trades on the Nasdaq Stock Market under the symbol ATLI and is an
authorized security for quotation on the Nasdaq Stock Market's National Market
System (the "Nasdaq National Market").

The market prices of the Company's Common Stock during the two-year period
ended December 31, 1997 are set forth below. The prices reflect the high and
low trading prices during each quarter as reported by the Nasdaq National
Market to ATL.

ATL COMMON STOCK HIGH LOW
---------------- ------ ------

Quarter ended December 31, 1997.............................. 48.125 39.438
Quarter ended September 26, 1997............................. 47.875 33.75
Quarter ended June 27, 1997.................................. 45.25 27
Quarter ended March 28, 1997................................. 37 28.75
Quarter ended December 31, 1996.............................. 33.25 25
Quarter ended September 27, 1996............................. 38.50 25.25
Quarter ended June 28, 1996.................................. 40.75 26.50
Quarter ended March 29, 1996................................. 31.50 20.50

Shareholders. The number of shareholders of record of the Company's Common
Stock as recorded on the books of ATL's Registrar and Transfer Agent as of
March 20, 1998 was 7,256.

Dividends. The Company has not paid cash dividends on its capital stock and
does not currently have any plans to pay such dividends in the foreseeable
future. The Company's dividend policy is dependent upon its earnings, the
overall financial condition of ATL, and other factors to be considered by the
Board of Directors from time to time.

ITEM 6. SELECTED FINANCIAL DATA

Reference is made to page 12 of the 1997 Annual Report to Shareholders,
which is incorporated herein by reference and made a part hereof in response
to the information required by this item.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Reference is made to pages 13 through 16 of the 1997 Annual Report to
Shareholders, which is incorporated herein by reference and made a part hereof
in response to the information required by this item.

Updating the "Capital Resources and Liquidity" section on page 15 of
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS," the Company has recently decided to contribute capital of $18
million in cash to SonoSight, Inc. on the Distribution Date, and $12 million
in cash on January 15, 1999. SonoSight, Inc. is the wholly-owned subsidiary
consisting of ATL's handheld business which the Company intends to spin-off to
ATL shareholders through a tax-free stock distribution in the second quarter
of 1998. This change in capital structure was prompted by Nasdaq National
Market listing requirements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable. The Company is a non-bank and non-thrift registrant which is
not subject to this reporting requirement until fiscal years ending after June
15, 1998.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following Consolidated Financial Statements are incorporated herein by
reference and made a part hereof from the 1997 Annual Report to Shareholders
in response to the information required by this item:

PAGE
-----

Independent Auditors' Report........................................ 17
Consolidated Financial Statements:
Consolidated Balance Sheets at December 31, 1997 and 1996......... 18
Consolidated Statements of Operations for each of the years in the
three-year period ended December 31, 1997........................ 19
Consolidated Statements of Cash Flows for each of the years in the
three-year period ended December 31, 1997........................ 20
Consolidated Statements of Shareholders' Equity for each of the
years in the three-year period ended December 31, 1997........... 21
Notes to Consolidated Financial Statements........................ 22-31

See Part IV, Item 14, for the Financial Statement Schedules filed with this
Form 10-K Report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by Part III (Items 10) is partially set forth in
ATL's definitive proxy statement for the Company's 1998 Annual General Meeting
of Shareholders which will be filed pursuant to Regulation 14A within 120 days
of December 31, 1997. Such information is incorporated herein by reference and
made a part hereof.

The information set forth in ITEM 1 "Executive Officers of the Registrant",
found on page 14 of this Form 10-K is incorporated herein by reference in
response to the information required by this item.

ITEM 11. EXECUTIVE COMPENSATION

The information required by Part III (Item 11) is set forth in ATL's
definitive proxy statement for the Company's 1998 Annual General Meeting of
Shareholders which will be filed pursuant to Regulation 14A within 120 days of
December 31, 1997. Such information is incorporated herein by reference and
made a part hereof.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by Part III (Item 12) is set forth in ATL's
definitive proxy statement for the Company's 1998 Annual General Meeting of
Shareholders which will be filed pursuant to Regulation 14A within 120 days of
December 31, 1997. Such information is incorporated herein by reference and
made a part hereof.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by Part III (Item 13) is set forth in ATL's
definitive proxy statement for the Company's 1998 Annual General Meeting of
Shareholders which will be filed pursuant to Regulation 14A within 120 days of
December 31, 1997. Such information is incorporated herein by reference and
made a part hereof.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(A) THE FOLLOWING DOCUMENTS ARE FILED AS A PART OF THIS REPORT:

1. Financial Statements.

As noted in Part II, Item 8, the following financial statements have been
incorporated by reference from the Company's 1997 Annual Report to
Shareholders:

Independent Auditors' Report

Consolidated Financial Statements:

Consolidated Balance Sheets at December 31, 1997 and 1996
Consolidated Statements of Operations for each of the years in the
three-year period ended December 31, 1997.
Consolidated Statements of Cash Flows for each of the years in the
three-year period ended December 31, 1997.
Consolidated Statements of Shareholders' Equity for each of the years
in the three-year period ended December 31, 1997.
Notes to Consolidated Financial Statements.

2. Financial Statement Schedules.

An index to the financial statement schedules required to be filed by Part
II, Item 8 of this Form 10-K is set forth immediately before the attached
financial statement schedule on page 18 of this filing.

3. Management Contracts and Compensatory Arrangements.

Exhibits constituting management contracts and compensatory arrangements are
indicated by footnote (M).

(B) REPORTS ON FORM 8-K:

None

The required exhibits are included at the back of this Form 10-K and are
described in the Exhibit Index immediately preceding the first exhibit.

INDEX TO FINANCIAL STATEMENT SCHEDULES

PAGE
----

Independent Auditors' Report.............................................. (19)
II--Valuation and Qualifying Accounts for the Years ended December 31,
1997, 1996 and 1995...................................................... (27)

All other schedules are omitted because they are not applicable, the
required information is not present or is not present in amounts sufficient to
require submission of the schedule, or because the information required is
included in the consolidated financial statements and notes thereto.

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders
ATL Ultrasound, Inc.:

Under date of February 13, 1998 we reported on the consolidated balance
sheets of ATL Ultrasound, Inc. and subsidiaries as of December 31, 1997 and
1996, and the related consolidated statements of operations, shareholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1997, as contained in the 1997 annual report to shareholders.
These consolidated financial statements and our report thereon are
incorporated by reference in the annual report on Form 10-K for the year 1997.
In connection with our audits of the aforementioned consolidated financial
statements, we also audited the related consolidated financial statement
schedule of valuation and qualifying accounts. This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement schedule based on our
audits.

In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.

KPMG Peat Marwick LLP

Seattle, Washington
February 13, 1998

CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS

The Board of Directors
ATL Ultrasound, Inc.:

We consent to incorporation by reference in the registration statements,
333-41217, 333-29955, 333-08881, 33-61807, 33-38218, 33-38217, 33-28830, 33-
28092, 33-22434, 33-10618, 33-47967, 33-54757, 33-59914 and 33-66298 on Form
S-8, of ATL Ultrasound, Inc., of our reports dated February 13, 1998, relating
to the consolidated balance sheets of ATL Ultrasound, Inc. and subsidiaries as
of December 31, 1997 and 1996, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the years in the
three-year period ended December 31, 1997, and related financial statement
schedule, which reports appear in the December 31, 1997 annual report on Form
10-K, or are incorporated by reference therein from the 1997 annual report to
shareholders of ATL Ultrasound, Inc.

KPMG Peat Marwick LLP

Seattle, Washington
March 27, 1998

SIGNATURES

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints DENNIS C. FILL, PAMELA L. DUNLAP, and W.
BRINTON YORKS, Jr. and each of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution, and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any and all
amendments to this Annual Report on Form 10-K, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his/her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.

PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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.

ATL Ultrasound, Inc.
(Registrant)

/s/ Dennis C. Fill
By __________________________________
Dennis C. Fill
Chairman of the Board

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.

SIGNATURE TITLE DATE
--------- ----- ----

/s/ Dennis C. Fill Chairman of the Board, Chief March 27, 1998
____________________________________ Executive Officer,
Dennis C. Fill President and Director

/s/ Pamela L. Dunlap Senior Vice President and March 27, 1998
____________________________________ Chief Financial Officer
Pamela L. Dunlap

/s/ Kirby L. Cramer Director March 27, 1998
____________________________________
Kirby L. Cramer

/s/ Harvey Feigenbaum Director March 27, 1998
____________________________________
Harvey Feigenbaum M.D.

/s/ Eugene A. Larson Director March 27, 1998
____________________________________
Eugene A. Larson

/s/ Ernest Mario Director March 27, 1998
____________________________________
Ernest Mario, Ph.D.

SIGNATURE TITLE DATE
--------- ----- ----

/s/ John R. Miller Director March 27, 1998
____________________________________
John R. Miller

/s/ Phillip M. Nudelman Director March 27, 1998
____________________________________
Phillip M. Nudelman

/s/ Harry Woolf Director March 27, 1998
____________________________________
Harry Woolf, Ph.D.

/s/ Edith M. Feild Vice President and Corporate March 27, 1998
____________________________________ Controller (Principal
Edith M. Feild Accounting Officer)

INDEX TO EXHIBITS

EXHIBIT NO. DESCRIPTION
----------- -----------

(A) 3.1 Articles of Incorporation of ATL Ultrasound, Inc.

(B) 3.2 Certificate of Designation of Series A, Participating Cumulative Preferred Stock Setting Forth the Powers,
Preferences, Rights, Qualifications, Limitations and Restrictions of Such Series of Preferred Stock of ATL Ultrasound,
Inc.

(D) 4.1 Amended and Restated Rights Agreement between Advanced Technology Laboratories, Inc. and First Chicago Trust Company
of New York dated as of June 26, 1992.

(E) 4.2 Revolving Credit Loan Agreement by and among Advanced Technology Laboratories, Inc. (Washington), Advanced Technology
Laboratories, Inc. (Delaware) and Seattle-First National Bank dated as of June 26, 1992 and supplemental letter dated
February 4, 1993.

(E) 4.3 Uncommitted Line of Credit for $10 million by and among Advanced Technology Laboratories, Inc. (Washington), Advanced
Technology Laboratories, Inc. (Delaware) and Seattle-First National Bank dated as of June 18, 1992.

(F) 10.1 Lease between WRC Properties, Inc. and Advanced Technology Laboratories, Inc. dated January 10, 1992.

(G) 10.2 Note dated November 30, 1989 in the principal amount of $2,000,000 issued by Montgomery County Industrial Development
Corporation to The Pennsylvania Industrial Development Authority (incorporated by reference from Interspec, Inc. 1993
Annual Report, filed as Exhibit 10.27 on Form 10-K, filed on February 25, 1994).

(G) 10.3 Loan Agreement dated November 30, 1989 between Montgomery County Industrial Development Corporation and The
Pennsylvania Industrial Development Authority (incorporated by reference from Interspec, Inc. 1993 Annual Report,
filed as Exhibit 10.26 on Form 10-K, filed on February 25, 1994).

(G) 10.4 Mortgage dated November 30, 1989 between Montgomery County Industrial Development Corporation and The Pennsylvania
Industrial Development Authority (incorporated by reference from Interspec, Inc. 1993 Annual Report, filed as Exhibit
10.28 on Form 10-K, filed on February 25, 1994).

(G) 10.5 Memorandum of Installment Sale Agreement and Amendment dated November 30, 1989 between Montgomery County Industrial
Development Corporation and The Pennsylvania Industrial Development Authority (incorporated by reference from
Interspec, Inc. 1993 Annual Report, filed as Exhibit 10.13 on Form 10-K, filed on February 25, 1994).

(G) 10.6 Amendment to Installment Sale Agreement dated November 30, 1989 between Montgomery County Industrial Development
Corporation and The Pennsylvania Industrial Development Authority (incorporated by reference from Interspec, Inc. 1993
Annual Report, filed as Exhibit 10.12 on Form 10-K, filed on February 25, 1994).

(G) 10.7 Assignment of Installment Sale Agreement and Amendment dated November 30, 1989 by Montgomery County Industrial
Development Corporation to The Pennsylvania Industrial Development Authority (incorporated by reference from
Interspec, Inc. 1993 Annual Report, filed as Exhibit 10.14 on Form 10-K, filed on February 25, 1994).

(G) 10.8 Consent, Subordination and Assumption Agreement dated November 30, 1989 between Montgomery County Industrial
Development Corporation and The Pennsylvania Industrial Development Authority (incorporated by reference from
Interspec, Inc. 1993 Annual Report, filed as Exhibit 10.25 on Form 10-K, filed on February 25, 1994).

EXHIBIT NO. DESCRIPTION
----------- -----------

(G) 10.9 Promissory Note dated May 29, 1990 in the principal amount of $1,500,000 from Mifflin County Industrial Development
to The Pennsylvania Industrial Development Authority (incorporated by reference from Interspec, Inc. 1993 Annual
Report, filed as Exhibit 10.19 on Form 10-K, filed on February 25, 1994).

(G) 10.10 Loan Agreement dated May 29, 1990 between Mifflin County Industrial Development and The Pennsylvania Industrial
Development Authority (incorporated by reference from Interspec, Inc. 1993 Annual Report, filed as Exhibit 10.33 on
Form 10-K, filed on February 25, 1994).

(G) 10.11 Mortgage dated May 29, 1990 between Mifflin County Industrial Development and The Pennsylvania Industrial
Development Authority (incorporated by reference from Interspec, Inc. 1993 Annual Report, filed as Exhibit 10.20 on
Form 10-K, filed on February 25, 1994).

(G) 10.12 Installment Sale Agreement dated October 14, 1988 between Mifflin County Industrial Development and Interspec,
Inc.; Amendment of to Installment Sale Agreement dated December 9, 1988; and Second Amendment to Installment Sale
Agreement dated May 29, 1990 (incorporated by reference from Interspec, Inc. 1993 Annual Report, filed as Exhibit
10.22 on Form 10-K, filed on February 25, 1994).

(G) 10.13 Assignment of Installment Sale Agreement dated May 29, 1990 by Mifflin County Industrial Development to The
Pennsylvania Industrial Development Authority (incorporated by reference from Interspec, Inc. 1993 Annual Report,
filed as Exhibit 10.23 on Form 10-K, filed on February 25, 1994).

(G) 10.14 Consent, Subordination and Assumption Agreement dated May 29, 1990 by Mifflin County Industrial Development to The
Pennsylvania Industrial Development Authority (incorporated by reference from Interspec, Inc. 1993 Annual Report,
filed as Exhibit 10.32 on Form 10-K, filed on February 25, 1994).

(H) 10.15 Purchase and Sale Agreement by and between ELDEC Corporation, N.C. ELDEC Inc. and ATL for the sale of ELDEC
Building and surrounding property.

(H) 10.16 Certificate and Indemnity Agreement by ATL for the benefit of Seattle First National Bank for $11,500,000 loan for
ELDEC Building and surrounding property.

(H) 10.17 Deed of Trust, Security Agreement as of December 28, 1994, by ATL to Rainier Trust Company for the Benefit of
Seattle-First National Bank, for ELDEC Building and surrounding property.

(H) 10.18 Promissory Note for $11,500,000 dated December 28, 1994 from ATL to Seattle-First National Bank for ELDEC Building
and surrounding property.

(I)(M)(R) 10.19 1986 Amended and Restated Option, Restricted Stock, Stock Appreciation Right and Performance Unit Plan.

(M)(R) 10.20 Advanced Technology Laboratories, Inc. Incentive Savings and Stock Ownership Plan, Amended and Restated effective
January 1, 1997.

(M) 10.21 First Amendment to the Advanced Technology Laboratories, Inc. Incentive Savings and Stock Ownership Plan, effective
July 1, 1997.

(M)(C) 10.22 Advanced Technology Laboratories, Inc. Supplemental Benefit Plan A, Amended and Restated January 1, 1996.

(M)(C) 10.23 ATL Supplemental Benefit Plan B, Amended and Restated January 1, 1996.

(H) 10.24 Trust Agreement for Incentive Savings and Stock Ownership Plan by and between Advanced Technology Laboratories,
Inc. and First Interstate Bank of Washington, N.A. effective June 26, 1992.

EXHIBIT NO. DESCRIPTION
----------- -----------

(M)(J) 10.25 Amended and Restated Retirement Plan, effective May 17, 1994.

(M)(J) 10.26 First Amendment to ATL Retirement Plan dated December 29, 1995.

(M)(C) 10.27 Second Amendment to ATL Retirement Plan dated July 25, 1996.

10.28 Third Amendment to the Advanced Technology Laboratories, Inc. Retirement Plan.

(H) 10.29 Amended and Restated Retirement Plan Trust Agreement by and between Advanced Technology
Laboratories, Inc. and First Interstate Bank of Washington, N.A. effective December 29, 1993.

(K)(M)(R) 10.30 Management Incentive Compensation Plan.

(L)(M) 10.31 Amendment to Management Incentive Compensation Plan, effective May 5, 1993.

(E) 10.32 Employee Benefit Allocation Agreement between Westmark International Incorporated and SpaceLabs
Medical, Inc. dated as of May 18, 1992.

(N)(M)(R) 10.33 Amended 1992 Option, Stock Appreciation Right, Restricted Stock, Stock Grant and Performance Unit
Plan, dated May 8, 1996.

(E) 10.34 Forms of Option Grant, Restricted Stock Award Agreement and Restricted Stock Award Letter under the
1992 Option, Stock Appreciation Right, Restricted Stock, Stock Grant and Performance Unit Plan.

(L)(M) 10.35 Long Term Incentive Plan, effective January 1, 1993.

(N) 10.36 Amended Nonemployee Director Stock Option Plan, dated May 8, 1996.

(I)(M) 10.37 Change of Control Employment Agreement with Dennis C. Fill dated January 1, 1991.

(E)(M) 10.38 First Amendment to Employment Agreement with Dennis C. Fill dated May 18, 1992.

(C)(M) 10.39 Third Amendment to Employment Agreement with Dennis C. Fill dated July 25, 1996.

(M) 10.40 Fourth Amendment to Employment Agreement with Dennis C. Fill, dated June 9, 1997.

(O)(R) 10.41 Amended and Restated Nonofficer Employee Option, Restricted Stock and Stock Grant Plan.

(P)(R) 10.42 1992 Nonofficer Employee Stock Option Plan.

(M)(P) 10.43 ATL Employee Stock Purchase Plan, adopted October 25, 1996.

(Q) 10.44 Amended and Restated Agreement and Plan of Merger as of February 10, 1994 between ATL and Interspec,
Inc. and Press Releases dated February 10, and February 24, 1994.

13 1997 Annual Report to Shareholders (Such report, except to the extent incorporated herein by
reference, is being provided for the information of the Securities and Exchange Commission, only,
and is not deemed to be filed as a part of this Annual Report on Form 10-K).

21 Subsidiaries of ATL as of December 31, 1997.

23 Consent of KPMG Peat Marwick LLP. Reference is made to the Consent on page 19 of this filing in
response to this item.

27.1 Financial Data Schedule for Fiscal Year 1997.

27.2 Restated Financial Data Schedule for Fiscal Year 1996.

27.3 Restated Financial Data Schedule for Fiscal Year 1995.

(S) 28 Proxy Statement to Shareholders for ATL's 1998 Annual General Meeting of Shareholders.

EXHIBIT NO. DESCRIPTION
- ----------- -----------

(A) Previously filed with, and incorporated herein by reference to, ATL's
Current Report on Form 8-K, File No. 0-15160, filed July 9, 1997.

(B) Previously filed with, and incorporated herein by reference to, ATL's
Current Report on Form 8-K, File No. 0-15160, filed on January 11, 1996.

(C) Previously filed with, and incorporated herein by reference to ATL's
Annual Report on Form 10-K, File No. 0-15160, filed on March 28, 1997.

(D) Previously filed with, and incorporated herein by reference to, Westmark
International Incorporated's Amendment to Application Form 8, filed on
June 25, 1992.

(E) Previously filed with, and incorporated herein by reference to, ATL's
Annual Report on Form 10-K, File No. 0-15160, filed on March 25, 1993.

(F) Previously filed with, and incorporated herein by reference to, Westmark's
Annual Report on Form 10-K, File No. 0-15160, filed on March 26, 1992.

(G) Previously filed and incorporated herein by reference from Interspec,
Inc.'s Annual Report on Form 10-K/A, File No. 0-15883, filed on February
25, 1994.

(H) Previously filed with, and incorporated herein by reference to, ATL's
Annual Report on Form 10-K, File No. 0-15160, filed on March 30, 1995.

(I) Previously filed with, and incorporated herein by reference to, Westmark's
Annual Report on Form 10-K, File No. 0-15160, filed on March 22, 1991.

(J) Previously filed and incorporated herein by reference to, ATL's Annual
Report on Form 10-K, File No. 0-15160, filed on March 28, 1996.

(K) Previously filed with, and incorporated herein by reference to, Westmark's
Registration Statement on Form 10, File No. 0-15160.

(L) Previously filed with, and incorporated herein by reference to, ATL's
Annual Report on Form 10-K, File No. 0-15160, filed on March 4, 1994.

(M) Management Contracts and Compensatory Arrangements.

(N) Previously filed with, and incorporated herein by reference to, ATL's
Registration Statement on Form S-8, Registration No. 333-08881, filed on
July 26, 1996.

(O) Previously filed with, and incorporated herein by reference to, Westmark
International Incorporated's Registration Statement on Form S-8,
Registration No. 33-38218, filed on December 14, 1990.

(P) Previously filed and incorporated herein by reference to ATL's
Registration Statement on Form S-8, Registration No. 333-29955, filed on
June 25, 1997.

(Q) Previously filed with, and incorporated herein by reference to, ATL's
Current Report on Form 8-K, File No. 0-15160, filed on February 17, 1994
and March 4, 1994.

(R) Previously filed and incorporated herein by reference to ATL's Post
Effective Amendment No. 1 on Form S-8, filed on August 14, 1995.

(S) To be filed within 120 days of the 1996 fiscal year end pursuant to
General Instruction G to Form 10-K.

SCHEDULE II

ATL ULTRASOUND, INC.

VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED
DECEMBER 31, 1997, 1996 AND 1995

ADDITIONS
-------------------
BALANCE
BALANCE AT CHARGED TO CHARGED AT END
BEGINNING COSTS AND TO OTHER OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
----------- ---------- ---------- -------- ---------- -------
(IN THOUSANDS)

Year ended December 31,
1997
Valuation accounts
deducted from assets:
Allowance for doubtful
receivables and sales
returns .............. $ 9,621 $1,744 $ -- $3,585(1) $ 7,780
======= ====== ===== ====== =======
Year ended December 31,
1996:
Valuation accounts
deducted from assets:
Allowance for doubtful
receivables and sales
returns............... $10,140 $1,553 $ -- $2,072(1) $ 9,621
======= ====== ===== ====== =======
Year ended December 31,
1995:
Valuation accounts
deducted from assets:
Allowance for doubtful
receivables and sales
returns............... $10,428 $1,521 $ -- $1,809(1) $10,140
======= ====== ===== ====== =======

NOTE:

(1) Accounts charged off, net of recoveries.