Advanced Technology Laboratories, Inc. History

Address:

22100 Bothell Everett Highway
Bothell, Washington 98041-3003
U.S.A.

Telephone: (206) 487-7000
Fax: (206) 485-6080

Public Company
Incorporated: 1969
Employees: 1,896
Sales: $323.7 million
Stock Exchanges: NASDAQ
SICs: 3845 Electromedical Equipment

Company History:

Advanced Technology Laboratories, Inc., (ATL) is one of the leading diagnostic ultrasound imaging companies in the world, serving customers in over 80 countries through a network of direct subsidiaries and independent distributors. Ultrasound employs high frequency sound waves to create an image of the body's soft tissues, organs, and fetal anatomy, as well as enabling the display of blood flow characteristics. As an innovator in the ultrasound imaging industry, ATL has contributed significantly to the advancement of ultrasound technology and the fabrication of ultrasound equipment, which medical facilities utilize to avoid more invasive and costly procedures.

Founded in 1969, ATL did not enter the medical ultrasound industry until 1974, the year a transfer of technology from the University of Washington in Seattle enabled the company to begin manufacturing products for hospitals and physicians. This connection with the University of Washington was the first such tie with the academic community and was a relationship ATL would cultivate in the future and rely on for assistance in pioneering new products. Being on the vanguard of new technology was essential to ATL's business, as it found itself in a fiercely competitive and rapidly growing market that allowed only those companies using the latest technological advances to survive. ATL thrived during its first decade of business, using its ties with academia and investing in its own research to quickly rise to a leading position in the ultrasound industry.

In fact, growth had come so quickly for the company that it was unable to keep pace with its success in a systematic manner. By the end of the 1970s, the facilities used to manufacture, market, and administrate its business had expanded to the extent that the efficacy of the company's operations was somewhat hampered. ATL's 14 buildings were scattered throughout two communities east of Seattle, Washington, and its warehouse was situated ten miles from its manufacturing plants. Nevertheless, it would be several years before the facilities were consolidated, and ATL's haphazard expansion did reflect its success, which had not gone unnoticed by those looking for a way to enter the ultrasound market.

The Squibb Corporation, a manufacturer and marketer of a broad line of health care and consumer products, was one company piqued by ATL's initial success. In the late 1970s, Squibb was involved in a diversification plan that called for a move into the medical equipment market, and the acquisition of ATL appeared to be the answer for such an entrance. In December 1979, Squibb purchased ATL for $60 million and formed a medical equipment subsidiary within which ATL operated. As part of Squibb's diversification efforts, Spacelabs, Inc., a manufacturer of patient monitoring systems, was also acquired shortly after the purchase of ATL, and for the next decade Spacelabs was grouped with ATL.

Spacelabs was formed in 1958 as an independent company to assist the National Aeronautics and Space Administration (NASA) in its bid to launch astronauts in space. Initially, the company developed monitoring devices to assess the life functions of test pilots and astronauts, then, in 1968, it began manufacturing equipment for intensive care and coronary units in hospitals. Like ATL, Spacelabs flourished in the 1970s, attracting the attention of Squibb in the latter part of the decade. Two months after Squibb purchased ATL, it acquired Spacelabs for $34.4 million, and, along with another company Squibb had formed, Squibb Medical Systems, the medical equipment subsidiary began operations.

Under Squibb's management, the robust performance records and rapid expansion enjoyed by both Spacelabs and ATL during the 1970s slowed considerably, particularly in ATL's case. ATL's decline was largely attributable to a drop in capital investments and an insufficient allocation of funds toward research and development. For a company whose success had been predicated on consistently incorporating technological advances into its products, the absence of funds to fuel further technological development caused the company to fall behind its competitors, and its performance suffered. Spacelabs experienced a similar reduction in capital investments, but fared better than ATL, as observers began to question whether Squibb was genuinely committed to its new business segment.

In 1985 ATL's diffused assortment of buildings was replaced with a more centralized complex to increase the efficiency of its operations. Questions concerning Squibb's commitment to ATL still hounded Squibb's leadership, however, and some financial analysts began to predict that Squibb would sell ATL. Nevertheless, Squibb's chief executive officer, Richard M. Furlaud, hoped the establishment of a new, consolidated headquarters for ATL would put to rest the doubts of the investing public. When asked about Squibb's level of commitment to ATL and what the new complex meant for the relationship between ATL and Squibb, Furlaud responded to the Seattle Times, "I believe it [ATL] is going to be very successful and play a key role in the future of Squibb ... and I don't think anybody will have to ask that question anymore." Despite Furlaud's optimism, ATL and its medical equipment counterparts racked up combined losses of $37 million for the year, as the subsidiary continued to struggle for profitability. Less than a year after Furlaud had attempted to assuage the anxieties concerning ATL's future, Squibb announced plans to spin off Spacelabs, Squibb Medical Systems, and ATL to Squibb shareholders.

The spin-off of the subsidiary was part of a general plan initiated by Squibb in 1984 to divest itself of less profitable, non-pharmaceutical operations. Before the decision was announced, the corporation had achieved remarkable results in developing a new heart drug, Capoten, which underscored the strength of its primary line of business--the development and distribution of pharmaceutical drugs--and the weakness of its less successful operations. Accordingly, 96 percent of the three medical equipment companies' stock was distributed to Squibb shareholders in January 1987, and a holding company for the former subsidiary was created, named Westmark International Inc.

First, Westmark needed new leadership, and after an extensive executive search failed to produce a suitable candidate, the president of Squibb, Dennis C. Fill, opted to assume the stewardship of the reorganized company. Fill, who had been largely responsible for Squibb's success in the development of Capoten, inherited an organization riddled with problems stemming primarily from ATL's lackluster performance over the past several years. Customers had recently begun to complain about the quality and reliability of ATL's products, a consequence of the scarcity of resources appropriated for research and development. Unable to pursue experiments employing digital technology, the newest breakthrough in ultrasound products, the company was overrun by its major competitors, Acuson Corp., Hewlett-Packard, and Toshiba. To exacerbate matters, these rival companies were better financed than ATL and enjoyed greater research and development budgets, which further widened the technological gulf between ATL and the rest of the industry. As a whole, the subsidiary had generated sales of $243.8 million in 1986, the year before it was spun off from Squibb, and was still recovering from the $37 million it had lost in 1985. The prospects for the company were bleak and some industry pundits claimed Fill had taken the helm of a "rapidly sinking ship." However, once the companies were returned to a more entrepreneurial environment, unfettered by the directives of Squibb, and needed changes were effected, the newly formed Westmark slowly began to produce positive results.

Despite the losses incurred by the companies, Squibb left its former subsidiary in relatively good shape for recovery. Westmark was granted $50 million in working capital, which Fill immediately earmarked for the company's research and development budget, and nearly $40 million of debt was cancelled by Squibb. To expedite the company's return to the forefront of ultrasound and patient monitoring technology, an esteemed scientific advisory council was formed that included Nobel laureate Dr. Paul Berg of Stanford Medical School. In addition to increasing research and development spending by over 20 percent, Fill also closed a factory in Tempe, Arizona, in an attempt to streamline the company's manufacturing operations. In its first year of operating independently from Squibb, Westmark's sales climbed to $291.8 million, but the company still suffered a $7.2 million loss. Partly to blame for the year's loss were several difficulties with patents for Westmark's products and some production problems. Nevertheless, once these were rectified, the company began posting profits. In 1988, sales climbed to $365.2 million, and the company's net income surged into the black, reaching $10.7 million.

This remarkable turnaround was chiefly attributable to the more sophisticated products Spacelabs and ATL produced after the spin off from Squibb. The emphasis Fill placed on research and development had enabled the two companies to catch up to their competitors, and now they were successfully competing for market share. ATL, which accounted for over 60 percent of Westmark's revenues, was, by this time, immersed in the development of ultrasound products utilizing the latest all-digital technology. By mid-1989, ATL had introduced Ultramark 9, the result of its efforts toward developing digital ultrasound equipment, and the sales generated by the company increased markedly. ATL had also designed its products to be utilized for a broad range of medical specialties, including cardiology and obstetrics, an advantage its products held over those of Acuson and Hewlett-Packard. Sales for the year were $438.7 million, and net income shot up to nearly $20 million, as both ATL and Spacelabs once again found themselves in a dominant position within the medical equipment market. Spacelabs controlled a 17 percent share in the patient monitoring market, running a close second to Hewlett-Packard, and the technology used in ATL's recently introduced Ultramark 9 was expected to become the industry standard.

In 1991 ATL unveiled a new product employing digital ultrasound technology that was regarded by the medical industry as a significant advance in the applicability of ultrasound diagnoses. Using "high definition imaging," the new product, manufactured under the Ultramark 9 line, enabled medical personnel to view a sharper, more detailed image of various body tissues and organs than existing ultrasound products allowed. The advent of high definition imaging provided a considerable boost to ATL's revenues, as physicians, clinics, and hospitals found the new Ultramark 9 to be a cheaper, yet more powerful tool in the diagnoses of internal disorders. Selling for approximately $250,000, the high definition imaging system approached the scanning quality of magnetic resonance imaging systems, which sold for more than $1 million. With roughly 70 percent of ATL's $279.7 million in revenues generated by the Ultramark 9, Westmark's revenues increased to $504.7 million, and its net income climbed to nearly $23 million.

In June 1992, Westmark's board of directors decided to split its two subsidiaries apart. Under the terms of the arrangement, shareholders in Westmark were distributed all outstanding common stock of Spacelabs on a one-for-one basis. Westmark then adopted the name of Advanced Technology Laboratories, Inc. Both companies had been operating independently since they had been separated from Squibb, so the dissolution of Westmark did not represent a dramatic change for either company. Rather, the division of the two companies was a testament to their remarkable success since 1987. Now strong enough to operate as independently traded companies, both Spacelabs and ATL had secured a leading position in their respective markets. Fill became president of ATL and led the company toward its promising future. By this time, ATL commanded a 28 percent share in the estimated $2 billion global radiology market and held a ten percent share in the $1 billion to $2 billion a year specialized ultrasound market.

ATL's investment in research and development should continue to fuel the company's growth. Its high definition imaging ultrasound products are regarded as the best in the industry, which gives the company an appreciable advantage over its competitors. However, the effects of the Clinton administration's decisions concerning health care reform may hinder sales, as hospitals and clinics await the full ramifications of a national health care plan. In August 1993, ATL laid off 240 workers to mitigate losses incurred by the company as a result of a decline in sales from such uncertainties. Nevertheless, barring any further losses, ATL should continue to lead the ultrasound market into the future.

Advanced Technology Laboratories, Inc. History

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