<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the period ended July 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from to
Commission File Number 0-3717
PURITAN-BENNETT CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 44-0399150
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9401 Indian Creek Parkway
Building #40, Suite 300
P.O. Box 25905
Overland Park, Kansas 66225
(Address of principal executive offices) (Zip Code)
Company's telephone number, including area code 913-661-0444
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 and 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
As of September 7, 1994, there were 12,524,965 shares of the Company's $1.00 par
value common stock outstanding.
1
<PAGE>
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------
The unaudited condensed consolidated financial statements incorporated by
reference to the Puritan-Bennett Corporation Second Quarter Report, 1995, have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six month period ended July 31, 1994
are not necessarily indicative of the results that may be expected for the year
ended January 31, 1995. For further information refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended January 31, 1994.
2
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. - Financial Statements.
Company or group of companies for which report is filed:
PURITAN-BENNETT CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited) - Three months
ended July 31, 1994 and 1993; and six months ended July 31, 1994 and 1993
(incorporated herein by reference to the Puritan-Bennett Corporation Second
Quarter Report, 1995).
Condensed Consolidated Balance Sheets (Unaudited) - July 31, 1994 and January
31, 1994 (incorporated herein by reference to the Puritan-Bennett
Corporation Second Quarter Report, 1995).
Condensed Consolidated Statements of Cash Flows (Unaudited) - Six months ended
July 31, 1994 and 1993 (incorporated herein by reference to the Puritan-
Bennett Corporation Second Quarter Report, 1995).
REVIEW BY INDEPENDENT PUBLIC ACCOUNTANTS
The condensed consolidated financial statements at July 31, 1994, and for the
three month and six month periods then ended have been reviewed, prior to
filing, by Ernst & Young LLP, the Company's independent auditors, and their
report is included herein.
3
<PAGE>
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 1: Long-term Debt
During the second quarter, the Company arranged through a private placement, $20
million, six-year final/four-year average maturity, unsecured promissory notes
at an interest rate of 7.57%. This increase in long term debt violated a debt
covenant in several of the Company's debt agreements requiring senior funded
debt not to exceed 45% of net tangible assets. Waivers were obtained setting
the maximum allowable amount of senior funded debt to 50% of net tangible
assets through October 31, 1994.
Proceeds from the notes were used to repay a portion of current notes payable.
As a result, a shifting of liabilities from current to long term occurred
curing, the default of the current ratio covenant (previously disclosed in the
annual report to stockholders) agreed to under various long-term debt
agreements. The Company must normally maintain a current ratio of 1.75, but the
Company obtained a waiver to lower this ratio to 1.6 through January 31, 1995.
The current ratio at July 31, 1994 was 2.35.
Waivers were obtained through January 1995 for other restrictions agreed to in
various long-term debt agreements. As a result, payments of dividends and
purchases of treasury stock are restricted to a maximum of $1.7 million.
After January 31, 1995, the most restrictive restricted payment covenant returns
to the sum of $4.5 million, 75% of net income and 100% of net losses since June
30, 1988. The Company is in compliance with waiver requirements.
4
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations for the Three and Six Months Ended July 31,
1994, Compared to the Three and Six Months Ended July 31, 1993
RESULTS OF OPERATIONS
(All dollars in thousands except where noted)
NET SALES
Net sales volume for the quarter ended July 31, 1994, increased 7.8% compared to
the quarter ended July 31, 1993, and 7.2% on a year-to-date basis. The
following tables show sales volume for the significant markets in which the
Company operates:
<TABLE>
<CAPTION>
PERCENT
Q2 1995 Q2 1994 CHANGE
----------------------------
<S> <C> <C> <C>
Home Care Markets $ 31,450 $ 27,054 16.2%
Hospital/Physician Markets 45,743 44,900 1.9%
Aviation Markets 6,800 5,960 14.1%
-------- --------
Total Net Sales $ 83,993 $ 77,914 7.8%
======== ========
PERCENT
YTD 1995 YTD 1994 CHANGE
----------------------------
Home Care Markets $ 60,782 $ 53,637 13.3%
Hospital/Physician Markets 90,079 87,692 2.7%
Aviation Markets 13,540 11,976 13.1%
-------- --------
Total Net Sales $164,401 $153,305 7.2%
======== ========
</TABLE>
Sales growth in the home care markets continues with revenues and orders up
16.2% and 28.1%, respectively, from Q2 last year and 13.3% and 20.8%,
respectively on a year-to-date basis despite the late FY 1994 decision to exit
the U.S. portable ventilator market. Two major clinical areas - home oxygen
therapy and the diagnosis and treatment of adult sleep disorders contributed to
this growth. As the size of the home oxygen therapy portion of this business
continues to grow, the Company expects the rate of growth in the United States
to slow but international growth to increase. The Company expects the diagnosis
and treatment of adult sleep disorders to become an increasingly larger portion
of its worldwide home care business. This new area is a relatively young and
rapidly growing market.
Hospital/Physician sales have flattened as the U.S. hospital market for the
7200(R) Series ventilator remains sluggish; however, international demand has
continued to grow. The
5
<PAGE>
level of interest in the Company's CliniVision(R) respiratory care management
information system continues to expand and revenues are growing. CliniVision
orders increased significantly in the second half of FY 1994 as hospitals
increasingly focused on this system as a valuable solution to their cost-
containment challenge and as the Company continued to enhance the CliniVision
system. More than 100 systems have now been installed. In total, the Company
expects the hospital/physician market revenues to be flat in FY 1995. The
Company has resolved to improve the profitability of this part of its business
within the context of lower revenue expectations than the Company has had in the
past.
The aviation portion of the Company's business is experiencing growth in
revenues and orders, up 13.1% and 12.7%, respectively on a year-to-date basis.
Revenues were up 14.1% from second quarter levels last year; however, quarterly
order comparisons are distorted as a result of significant Airborne Closed
Circuit Television (ACCTV(TM)) orders received in the second quarter of FY94.
The overall increase in the Company's aviation business is due in large part,
although not entirely, to a growing interest in the offerings of the ACCTV
operation.
While the Company expects revenue growth in Home Care and Aero Systems over
second quarter levels, overall third quarter revenue could be flat to slightly
up in comparison to second quarter revenue. Historically, third quarter incoming
order rates have been slow followed by stronger order rates in the fourth
quarter. This historical trend coupled with continuing stagnation in the U.S.
market for the 7200 Series ventilator could offset the expected growth in Home
Care and Aero Systems.
INTERNATIONAL SALES GROWTH
The following tables reflect the amount of sales and operating profits from the
United States and foreign geographic segments:
<TABLE>
<CAPTION>
NET SALES PERCENT
Q2 1995 Q2 1994 CHANGE
-----------------------------
<S> <C> <C> <C>
U.S. Operations $ 65,480 $ 66,332 (1.3%)
Foreign Operations 18,513 11,582 59.8%
-------- --------
Total Net Sales $ 83,993 $ 77,914 7.8%
======== ========
NET SALES PERCENT
YTD 1995 YTD 1994 CHANGE
-----------------------------
U.S. Operations $126,668 $129,679 (2.3%)
Foreign Operations 37,733 23,626 59.7%
-------- --------
Total Net Sales $164,401 $153,305 7.2%
======== ========
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
OPERATING PROFIT PERCENT
Q2 1995 Q2 1994 CHANGE
------------------------------
<S> <C> <C> <C>
U.S. Operations $ 2,144 $2,628 (18.4%)
Foreign Operations 4,175 (252) 1,756.7%
------- ------
Total Net Profit $ 6,319 $2,376 165.9%
======= ======
OPERATING PROFIT PERCENT
YTD 1995 YTD 1994 CHANGE
------- ------ -------
U.S. Operations $ 3,688 $4,261 (13.4%)
Foreign Operations 7,689 1,346 471.2%
------- ------
Total Net Profit $11,377 $5,607 102.9%
======= ======
</TABLE>
The increase in foreign operations net sales and operating profit from Q2 1994
was primarily due to the addition of the SEFAM S.A. product line and a large
increase in sales in Germany. The German operation was in a start-up
environment during the comparable period of FY1994.
The following tables reflect sales by customer location:
<TABLE>
<CAPTION>
Q2 1995 Q2 1994
---------------- ----------------
<S> <C> <C> <C> <C>
Customers Within the U.S. $ 56,130 66.8% $ 56,787 72.9%
Customers Outside the U.S. 27,863 33.2% 21,127 27.1%
-------- ----- -------- -----
Total Net Sales $ 83,993 100.0% $ 77,914 100.0%
======== ====== ======== =====
YTD 1995 YTD 1994
-------- --------
Customers Within the U.S. $107,506 65.4% $111,333 72.6%
Customers Outside the U.S. 56,895 34.6% 41,972 27.4%
-------- ----- -------- -----
Total Net Sales $164,401 100.0% $153,305 100.0%
======== ===== ======== =====
</TABLE>
During the past decade, the Company's business profile has changed substantially
from predominantly a supplier of life-support capital equipment to the United
States hospital market to the home care market. Home care has been, and is
expected to continue to be, the fastest growing part of the Company's business.
Life-support products sold in the U.S. market will likely represent a smaller
share of the Company's business in the future; a trend that does help lower the
Company's U.S. regulatory and health care reform risks.
In late January 1994, the Company finalized the previously announced acquisition
of SEFAM S.A., the leading European supplier of diagnostic and therapeutic sleep
disorder products, and its 80% owned Lit Dupont S.A. subsidiary, which
manufactures wheelchair products. Over the past five years, the Company's home
care business, which reached nearly $110 million in revenues in FY 1994 has
achieved a compound annual revenue growth rate of over 22% worldwide - 31%
internationally. The Company believes that the acquisition of SEFAM will help
such growth trends continue.
7
<PAGE>
GROSS PROFIT
The gross profit percentage for Q2 1995 decreased .5% from Q2 1994 and 1.3% on a
year-to-date basis. Gross profit was adversely affected by the higher costs
associated with GMP compliance activities and by the continued weakness of the
hospital market. These effects were partially offset by the purchase of SEFAM
and Lit DuPont as well as the results of restructuring actions taken late in FY
1994.
<TABLE>
<CAPTION>
PERCENT
Q2 1995 Q2 1994 CHANGE
------------------------------
<S> <C> <C> <C>
Gross Profit $35,647 $33,395 6.7%
Gross Profit Percentage 42.4% 42.9%
PERCENT
YTD 1995 YTD 1994 CHANGE
------------------------------
Gross Profit $69,438 $66,613 4.2%
Gross Profit Percentage 42.2% 43.5%
</TABLE>
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses for Q2 1995 remained relatively stable from
Q2 1994. An increase from the acquisition of SEFAM S.A. and its 80% owned Lit
Dupont S.A. subsidiary, in late FY 1994, and increased GMP related compliance
activities were offset by the results of restructuring actions taken in late FY
1994.
<TABLE>
<CAPTION>
PERCENT
Q2 1995 Q2 1994 CHANGE
----------------------------
<S> <C> <C> <C>
Selling and Administrative Exp $24,364 $24,315 .2%
PERCENT
YTD 1995 YTD 1994 CHANGE
-----------------------------
Selling and Administrative Exp $48,282 $47,753 1.1%
</TABLE>
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses for the quarter and year-to-date have
decreased approximately 26% over the prior comparable periods. The decrease
resulted primarily from the elimination of the Intra-Arterial Blood Gas
Monitoring product line. Research and development continues across all remaining
product lines.
8
<PAGE>
<TABLE>
<CAPTION>
PERCENT
Q2 1995 Q2 1994 CHANGE
-----------------------------
<S> <C> <C> <C>
Research and Development Exp $4,964 $ 6,704 (26.0%)
PERCENT
YTD 1995 YTD 1994 CHANGE
-----------------------------
Research and Development Exp $9,779 $13,253 (26.2%)
</TABLE>
OTHER (INCOME) EXPENSE
Other income in Q2 1995 and the first six months of FY 1995 increased over the
comparable periods of FY 1994 by $1,122 and $1,650, respectively. The increase
is almost entirely attributable to foreign currency transaction gains. These
gains arose from the weakening of the U.S. Dollar, the Company's functional
currency, in the markets in which the Company is doing business.
Q2 1995 Q2 1994
------------------
Other (Income) Expense ($ 369) $ 753
YTD 1995 YTD 1994
------------------
Other (Income) Expense ($1,181) $ 469
RESTRUCTURING CHARGES
A number of market and regulatory developments converged to make FY 1994 a
particularly challenging one for the Company as a whole. As a result, the
Company took a number of major actions in FY 1994 to reposition itself for the
future including:
restructured the hospital ventilator portion of its business;
consolidated its aviation business to three facilities from four;
closed its Boulder, Colorado facility and transferred the
manufacture of the portable ventilators made there to its ISO
(International Standards Organization) 9002- certified facility
in the Republic of Ireland;
planned the shutdown and offered for sale the FOxS operation.
As of July 31, 1994, approximately $6.2 million remained in accrued liabilities
representing expected severance, cancellation penalties, remaining facility
lease payments, and other costs necessary to complete the restructuring plan in
an orderly and effective manner. This amount is expected to be disbursed
primarily in the third and fourth quarters of FY 1995. No buyer was found for
the FOxS operation and the shutdown will be completed early in the third
quarter.
9
<PAGE>
PROVISION FOR INCOME TAXES
The Q2 1995 tax rate of 20.0% is less than the U.S. statutory rate of 35% due
to a greater proportion of total income being taxed at the lower international
rate of 10%. The Q2 1994 tax benefit was 42.7% due primarily to a $9.0 million
U.S. restructuring charge.
The Company has a tax valuation allowance of $15.7 million as required by SFAS
No. 109. The realization of this deferred tax benefit depends on the Company's
ability to generate sufficient taxable income in the future (approximately $20
million). Approximately 80% of the Company's total temporary differences are
expected to reverse in the next two years. As a result of the restructuring
taken during FY 1994, the Company believes it is well positioned to take
advantage of this tax benefit in the future.
If the Company is unable to generate sufficient taxable income in the future,
increases in the valuation allowance will be required through a charge to
expense. However, if the Company achieves sufficient profitability to use all
of the deferred tax benefit, the valuation allowance will be reduced through a
credit to expense.
FINANCIAL CONDITION
WORKING CAPITAL
The ratio of current assets to current liabilities is 2.4 at July 31, 1994, up
from 1.6 at January 31, 1994. Working capital increased, from $51.9 million to
$79.2 million. The primary reasons for the increase include a $16.9 million
decrease in notes payable as a result of new long-term notes completed late in
Q2 1995 and an approximate $8.1 million decrease in other accrued expenses;
primarily accrued restructuring expenses that were paid in Q1 and Q2 1995.
LIQUIDITY AND CAPITAL RESOURCES
Net cash and cash equivalents provided by operating activities decreased from
July 31, 1993 due to several factors. Net income of $7,968 for year-to-date
FY95 increased by approximately $13.8 million over the year-to-date loss for
FY94. This increase in cash and cash equivalents was offset by a $14.9 million
swing in restructuring charges. This swing was comprised of a $9.0 million
increase in year-to-date 1994 accrued restructuring charges versus a $5.9
million reduction in this accrual in FY95. There was a $1.7 million payout
from the deferred compensation plan in Q1 1995 for which there was no comparable
event in FY 1994. The change in prepaid expenses and other current assets
reflects a sale of marketable equity securities ($2.2 million) for which there
was no comparable sale in FY 1994. The increase in accounts receivable is a
reflection of higher sales volume as well as an increase in the proportion of
non U.S. sales, which have a longer collection period than U.S. sales, to total
sales (27.4% as of year-to-date 1994 versus 34.6% as of year-to-date 1995).
10
<PAGE>
Net cash and cash equivalents used in investing activities have decreased when
compared to year-to-date 1994. This decrease is due primarily to the
acquisition of Hoyer Medizintechnik, $6.6 million was paid in Q1 1994 and a
final payment of $2 million was paid in Q1 1995. An increase in proceeds from
the sale of capital assets was offset by an increase in capital expenditures.
Net cash and cash equivalents provided by financing activities have increased
when compared to year-to-date 1994. Short term notes payable have been reduced
by $16.9 million in year-to-date 1995 versus a $2.7 million increase in the
comparable FY 1994 period. This reduction was offset by a $20 million increase
in long-term debt in year-to-date 1995. These events, combined with minimal
stock repurchases in year-to-date 1995 resulted in a generation of $2.2 million
from financing activities in year-to-date 1995 versus $.4 million in the same
period of the prior fiscal year.
Long-term debt, excluding current maturities represents 35.3% of total capital
(long-term debt plus stockholder's equity) at July 31, 1994, and 26.4% at
January 31, 1994. At July 31, 1994, the Company had $35 million of unsecured
bank lines-of-credit available, $10.7 million of which was used.
HEALTH CARE REFORM
In the United States, President Clinton has made clear his determination to
reform this country's health care system. The two basic forces leading to
reform are the desire to: (1) provide basic financial access (insurance
coverage) to health care for all citizens, over 35 million of whom have only
limited, if any, financial access today; and (2) contain health care
expenditures, which now represent 14% of the economy and represent a sizable
contributor to chronic federal and some state government deficits. The first
desire, taken alone, would expand the health care system. The second desire,
taken alone, would restrain the expansion of the health care system. What the
balance will be between these two opposing desires remains to be seen. Clearly,
it has proven easier over the years to expand financial access to health care
than it has to contain health care spending. The Company would not be surprised
if the same holds true in the future. In any event, the Company is devoted to
developing respiratory products that make such significant contributions that
they will continue to be necessary, not discretionary, parts of all developed
health care systems.
11
<PAGE>
Independent Accountants' Review Report
The Board of Directors
Puritan-Bennett Corporation
We have reviewed the accompanying condensed consolidated balance sheet of
Puritan-Bennett Corporation and subsidiaries as of July 31, 1994, the condensed
consolidated statements of operations for the three-month and six-month periods
ended July 31, 1994 and 1993, and the condensed consolidated statements of cash
flows for the six-month periods ended July 31, 1994 and 1993. These financial
statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit in
accordance with generally accepted auditing standards, wich will be performed
for the full year with the objective of expressing an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Puritan-Bennett Corporation as of
January 31, 1994, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the year then ended (not presented
herein) and in our report dated March 7, 1994, we expressed an unqualified
opinion. During the year ended January 31, 1994, the Company changed its method
of accounting for income taxes, postretirement benefits and postemployment
benefits. The information set forth in the accompanying condensed consolidated
balance sheet as of January 31, 1994, is fairly stated, in all material
respects, in relation to the consolidated balance sheet from which it has been
derived.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
September 12, 1994
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits
Exhibits required by Item 601 of Regulation S-K are
listed in the Exhibit Index which is incorporated
herein by reference.
b. Reports on Form 8-K
There were no reports on Form 8-K filed for the three
months ended July 31, 1994.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
PURITAN-BENNETT CORPORATION
Registrant
September 13, 1994 /s/Lee A. Robbins
-----------------
Lee A. Robbins, Vice President,
Controller-Chief Financial Officer
(Principal Financial Officer,
Chief Accounting Officer and
duly authorized Officer to execute
on behalf of registrant)
14
<PAGE>
EXHIBIT INDEX
Exhibits filed with Securities and Exchange Commission:
(Number and description of exhibit)
(10a) Pension Benefit Make Up Plan
(10b) Second Amendment to the Supplemental Retirement Benefit Plan
(10c) Employment Agreement Between the Company and
John H. Morrow dated June 9, 1994
(10d) Management Incentive Bonus Plan A
(10e) Management Incentive Bonus Plan B
(11) Statement re: Computation of Per Share Earnings
(15) Letter re: Unaudited Interim Financial Information
(19) Puritan-Bennett Corporation Second Quarter
Report, 1995
(27) Financial Data Schedules
15
<PAGE>
Exhibit 10a
PURITAN-BENNETT CORPORATION
PENSION BENEFIT MAKE UP PLAN
----------------------------
PURITAN-BENNETT CORPORATION (the "Sponsoring Employer") does hereby
adopt and establish this Pension Benefit Make Up Plan (the "Make Up Plan" or
"Plan"), effective January 1, 1994.
WHEREAS, it is intended that this Make Up Plan shall constitute an
"excess benefit plan" as defined in ERISA Section 3(36) and/or an unfunded plan
maintained primarily for the purpose of providing deferred compensation for a
select group of management or highly compensated employees as referred to in
ERISA Sections 201, 301 and 401; and
WHEREAS, the Sponsoring Employer maintains a qualified defined benefit
plan, the Restated Puritan-Bennett Pension Plan (the "Pension Plan"), and a
qualified defined contribution plan, the Restated Puritan-Bennett Retirement
Savings & Stock Ownership Plan (the "Savings Plan"), for the benefit of eligible
employees; and
WHEREAS, the retirement or pension benefits of certain management or
highly compensated employees under the Pension Plan will or may be limited or
restricted by the application of the rules of Code Sections 415 and/or
401(a)(17), and by certain provisions of the Pension Plan; and
<PAGE>
WHEREAS, it is the purpose of this Make Up Plan to provide for those
persons whose benefits under the Pension Plan would be so limited or restricted,
a supplemental retirement or pension benefit equal to the difference between the
benefit provided by the Pension Plan and the benefit which the Pension Plan
would have provided except for the restrictions of Code Sections 415 and
401(a)(17) and similar limiting provisions of the Pension Plan; and
WHEREAS, with the modifications herein provided, the Pension Plan is
hereby incorporated by reference as a part of this Make Up Plan.
ARTICLE I
DEFINITIONS
-----------
Unless separately defined in this Make Up Plan, terms which are
defined in the Pension Plan shall, when used in this Plan, have the same meaning
given them in the Pension Plan. The following terms shall have the meanings set
forth below when used in this Plan:
2.01. Beneficiary: Any person or persons (including a trust or other
entity) designated by a Member (in such form or manner as may be prescribed by
the Committee) to receive a Death Benefit payable hereunder if such person or
persons survive the Participant.
2
<PAGE>
2.02. Board of Directors: The Board of Directors of Puritan-Bennett
Corporation, the Sponsoring Employer.
2.03. Member (or Participant): An Employee who has become a Member
of this Make Up Plan in accordance with the provisions of Article III hereof.
2.04 Pension (or Supplemental Pension): Except where specific
reference is made to the Pension benefits payable under the Pension Plan, the
monthly amounts which are payable to a person who is entitled to receive
benefits under this Make Up Plan.
2.05. Pension Plan: The Restated Puritan-Bennett Pension Plan, as in
effect on the effective date of this Make Up Plan or as thereafter amended to
comply with the Tax Reform Act of 1986 or subsequent laws relating to the
qualification of pension plans, and applicable regulations and rulings issued
thereunder.
ARTICLE II
MODIFICATIONS OF PENSION PLAN
-----------------------------
For purposes of interpreting this Make Up Plan and determining the
benefits of a Member hereunder, the following provisions of the Pension Plan
(which is otherwise incorporated by reference and constitutes a part of this
Plan) shall be deleted from and have no application to this Make Up Plan: (a)
the sentence or portion of
3
<PAGE>
Section 2.14 (the definition of "Compensation") relating to limitations imposed
by Code Section 401(a)(17); (b) Section 2.38; (c) Section 3.01; (d) Section
4.01; (e) Sections 4.07 and 4.08 relating to limitations imposed by Code
Section 415; (f) Section 6.06; (g) Sections 7.03 and 7.07; (h) Article VIII;
(i) Section 9.01; (j) Sections 10.02 and 10.04; (k) Article XI; (l) Section
12.02; (m) Article XIII imposing certain restrictions on the benefits of highly
compensated participants in the event of early plan termination; (n) Article
XIV; and (o) Article XV.
ARTICLE III
MEMBERSHIP
----------
The Members of this Make Up Plan shall be those Participants in the
Pension Plan whose retirement or pension benefits under the Pension Plan are or
will be limited or restricted by application of the rules of Code Section 415
and/or 401(a)(17) or by Article XIII of the Pension Plan. Membership shall
continue so long as the Member shall continue to be a Participant in the Pension
Plan.
4
<PAGE>
ARTICLE IV
SUPPLEMENTAL PENSION BENEFITS
-----------------------------
4.01. Normal or Late Retirement Supplemental Pension: A Member whose
employment with an Employer or Affiliate terminates (other than by reason of
death) on or after his Normal Retirement Age shall be entitled to a Normal or
Late Retirement Supplemental Pension, as the case may be, the Benefit
Commencement Date of which shall be the first day of the calendar month
coinciding with or next following such termination of employment. The amount of
the annual Normal or Late Retirement Supplemental Pension, payable in the basic
single life form, shall be the amount determined under subsection (a) below,
less or reduced by the amount determined under subsection (b) below:
(a) A percentage of the Member's Average Monthly Compensation, plus a
percentage of the Member's Average Monthly Compensation in excess of his
Covered Compensation, if any, with the total multiplied by the Member's
Years of Credited Service (not to exceed thirty (30)). Such percentages
shall be as follows:
(i) If the Member's Social Security Retirement Age is sixty-five
(65), 1.05% of Average Monthly Compensation and .75% of Average
Monthly Compensation in excess of Covered Compensation.
5
<PAGE>
(ii) If the Member's Social Security Retirement Age is sixty-
six (66), 1.1% of Average Monthly Compensation and .7% of Average
Monthly Compensation in excess of Covered Compensation.
(iii) If the Member's Social Security Retirement Age is sixty-
seven (67), 1.15% of Average Monthly Compensation and .65% of Average
Monthly Compensation in excess of Covered Compensation.
(b) The amount of the Member's Normal or Late Retirement Pension,
payable in the basic single life form, determined pursuant to Section 4.01
of the Pension Plan.
In further explanation of the foregoing, the Supplemental Pension benefits of a
Member under this Make Up Plan (prior to reduction by the amount of the Member's
Pension benefits under the Pension Plan) shall be calculated in the same manner
as the Pension benefits of such Member under the Pension Plan, but without
restriction or limitation on the amount of such Supplemental Pension resulting
from the application of the Code Section 401(a)(17) compensation limitations or
the Code Section 415 maximum benefit limitations, and without application of the
early termination limitations of Article XIII of the Pension Plan.
6
<PAGE>
4.02. All provisions relating to the time and the manner or form of
payment of Pension benefits under the Pension Plan shall be applicable to and
control the determination of the time and the manner or form of payment of
Supplemental Pension benefits under this Make Up Plan.
ARTICLE V
AMENDMENT AND TERMINATION
-------------------------
5.01. Amendment: The Sponsoring Employer reserves the right to amend this
Plan at any time and from time to time; provided that no such amendment shall
reduce the Accrued Benefit or defer the time of payment of the Pension benefits
of any Member hereunder.
5.02. Termination: The Sponsoring Employer, by action of the Board of
Directors, may terminate this Plan (cease the further accrual of benefits) at
any time; provided, however, that in the event of termination, each Member's
Accrued Benefit shall become fully vested and nonforfeitable, and the date of
such Plan termination shall be considered the Benefit Commencement Date for
purposes of payment of Members' Supplemental Pension benefits hereunder.
7
<PAGE>
IN WITNESS WHEREOF, Puritan-Bennett Corporation has caused this Pension
Benefit Make Up Plan to be executed this 9th day of June, 1994.
PURITAN-BENNETT CORPORATION
By: /s/ Burton A. Dole, Jr.
--------------------------------
President
(SEAL)
ATTEST:
/s/ Daniel C. Weary
- - --------------------------
Secretary
8
<PAGE>
Exhibit 10b
SECOND AMENDMENT
PURITAN-BENNETT CORPORATION
SUPPLEMENTAL RETIREMENT BENEFIT PLAN
------------------------------------
THIS AMENDMENT to the Puritan-Bennett Corporation Supplemental Retirement
Benefit Plan (the "Plan") is made this 9th day of June, 1994 by Puritan-Bennett
Corporation, a Delaware corporation (hereinafter referred to as the
"Corporation").
WHEREAS, the Corporation has adopted the Plan effective as of September 1,
1985, which provides benefits that supplement benefits provided under the
Restated Puritan-Bennett Pension Plan (the "Qualified Plan"); and
WHEREAS, the Plan was heretofore amended by a First Amendment thereto
effective on or about September 1, 1993; and
WHEREAS, the Corporation and the Members of the Plan have agreed to the
amendment of the Plan in the manner set forth below in order further offset
benefits by benefits payable under the new Puritan-Bennett Corporation Pension
Benefit Make Up Plan (the "Make Up Plan"), which was effective January 1, 1994.
NOW, THEREFORE, the Plan is amended effective January 1, 1994 as follows:
1. Section 4.01(a) is divided into two subsections and amended to read in
its entirety as follows:
Section 4.01(a)(i). The amount payable shall be reduced by
one-hundred percent (100%) of the monthly income or Pension benefits
payable or which would be payable to the Member under the Qualified
Plan in the form of a single life annuity commencing as of the date of
the Member's termination of employment.
Section 4.01(a)(ii). The amount payable shall also be reduced by
one-hundred percent (100%) of the Supplemental Pension benefits
payable or which would be payable to the Member under the Puritan-
Bennett Corporation Pension Benefit Make Up Plan in the form of a
single life annuity commencing as of the date of the Member's
termination of employment.
IN WITNESS WHEREOF, this Amendment is adopted as of the date set forth
above.
PURITAN-BENNETT CORPORATION
ATTEST: "Corporation"
By: /s/ Daniel C. Weary By Burton A. Dole, Jr.
---------------------------------- ----------------------------------
Title: Secretary Title: President
Date: June 9, 1994
<PAGE>
CONSENT OF AGREEMENT OF MEMBERS
-------------------------------
In consideration of their eligibility for participation in the Puritan-
Bennett Corporation Pension Benefit Make Up Plan which was effective January 1,
1994, the undersigned Members of the Puritan-Bennett Corporation Supplemental
Retirement Benefit Plan do hereby consent and agree to the terms and provisions
of the Second Amendment to the said Supplemental Retirement Benefit Plan.
/s/ Burton A. Dole, Jr.
----------------------------------------
Burton A. Dole, Jr.
/s/ John H. Morrow
----------------------------------------
John H. Morrow
-2-
<PAGE>
Exhibit 10c
June 9, 1994
Mr. John H. Morrow
Executive Vice President
Puritan-Bennett Corporation
9401 Indian Creek Parkway
Overland Park, Kansas 66225
Dear Mr. Morrow:
In view of your position as Executive Vice President and Chief Operating
Officer of Puritan-Bennett Corporation (the "Company") and in consideration of
your agreement to continue serving in this or some mutually agreeable capacity,
the Board of Directors (the "Board") of the Company has approved the commitment
by the Company to provide you ("Employee") with certain benefits during your
employment and in the event of termination of your employment for Good Reason,
if by you, and other than for Cause, if by the Company. This letter agreement
(the "Agreement") establishes the terms and conditions of your continued
employment by the Company, including your rights to receive certain payments and
benefits during and after your employment by the Company.
1. Certain Definitions.
-------------------
1.1 Cause. "Cause" means (a) the Employee's willful violation of
any reasonable rule or direct order of the Board or the
Company's Chief Executive Officer ("CEO"), which, after written
notice to do so, the Employee fails to make reasonable efforts
to correct within a reasonable time, or (b) conviction of a
crime, or entry of a plea of nolo contendere with regard to a
crime, involving actual moral turpitude or dishonesty of or by
the Employee, or (c) drug or alcohol abuse on Company premises
or at a Company sponsored event, or (d) the Employee's material
violation of any provision of this Agreement, which, after
written notice to do so, the Employee fails to make reasonable
efforts to correct within a reasonable time. "Cause" shall not
include any matter other than these specified in (a) through
(d) above, and without limiting the generality of the foregoing
statement, Cause shall not include (x) any charge or conviction
of a crime, or entry of a plea of nolo contendere with regard
to a crime, under the Federal Food, Drug, and Cosmetic Act, as
amended, or any successor statute thereto (the "Act"), or (y)
the imposition or attempt to impose upon the Employee, or upon
any operation, asset, product or activity of the Company, of
any other sanction or remedy under the Act, including without
limitation civil money penalties, warning letters, injunctions,
repairs, replacements,
<PAGE>
Mr. John H. Morrow
June 9, 1994
Page 2
refunds, recalls or seizures, if the Employee acted in good
faith and in a manner which he reasonably believed to be in or
not opposed to the best interests of the Company.
1.2 Good Reason. "Good Reason" means (a) breach by the Company or
any successor company of any of the provisions of this
Agreement not corrected within ninety (90) days after written
notice to the Company thereof, or (b) any of the following if
the same shall occur within two years after a Change of
Control: (i) reduction of the Employee's base salary,
management bonus percentage or other compensation, as in effect
immediately prior to the Change of Control, (ii) failure to
continue in effect any medical, dental, accident, or disability
plan in which the Employee is entitled to participate
immediately prior to the Change of Control and failure to
provide plans with substantially similar benefits (except that
employee contributions may be raised to the extent of any cost
increases imposed by third parties) or any action by the
Company which would adversely affect the Employee's
participation or reduce the Employee's benefits under any of
such plans, (iii) material reduction in Employee's job
responsibilities, (iv) material reduction of Employee's title
or position, (v) Employee shall be requested to relocate to an
office outside of the greater Kansas City metropolitan area, or
(vi) failure or refusal of any successor company to assume the
Company's obligations under this Agreement.
1.3 Change of Control. A "Change of Control" shall be deemed to
have occurred at any of the following times:
1.3.1 Upon the acquisition (other than from the Company)
by any person, entity or "group," within the meaning
of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934 (the "Exchange Act")
(excluding, for this purpose, the Company or its
affiliates, or any employee benefit plan of the
Company or its affiliates which acquires beneficial
ownership of voting securities of the Company) of
beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 50% or
more of either the then outstanding shares of common
stock of the Company or the Combined Voting Power of
the Company's then outstanding voting securities.
"Combined Voting Power" means the combined voting
power of the Company's then outstanding voting
<PAGE>
Mr. John H. Morrow
June 9, 1994
Page 3
securities generally entitled to vote in the
election of directors.
1.3.2 At the time individuals who, as of the date hereof,
constitute the Board (as of the date hereof, the
"Incumbent Board") cease for any reason to
constitute at least a majority of the Board,
provided that any person becoming a director
subsequent to the date hereof whose election, or
nomination for election by the Company's
shareholders, was approved by a vote of at least a
majority of the directors then comprising the
Incumbent Board (other than an election or
nomination of an individual whose initial assumption
of office is in connection with an actual or
threatened election contest relating to the election
of the directors of the Company, as such terms are
used in Rule 14a-11 of Regulation 14A promulgated
under the Exchange Act) shall be, for purposes of
this subsection 1.3.2, considered as though such
person were a member of the Incumbent Board; or
1.3.3 Upon the approval by the Shareholders of the Company
of a reorganization, merger, consolidation (in each
case, with respect to which persons who were the
shareholders of the Company immediately prior to
such reorganization, merger or consolidation do not,
immediately thereafter, own more than 50% of the
Combined Voting Power of the reorganized, merged or
consolidated company's then outstanding voting
securities) or a liquidation or dissolution of the
Company or of the sale of all or substantially all
of the assets of the Company; or
1.3.4 The occurrence of any other event which the
Incumbent Board in its sole discretion determines
constitutes a Change of Control.
1.4 Normal Retirement Date. "Normal Retirement Date" shall
mean the earliest date (currently, the Employee's 65th
birthday) upon which the Employee is eligible to retire
from the Company, and commence receiving full retirement
benefits under the Company's then applicable retirement
plan.
<PAGE>
Mr. John H. Morrow
June 9, 1994
Page 4
1.5 Employment Termination Date. The date of delivery of any
notice of termination pursuant to Section 2.5 shall be
the "Employment Termination Date."
1.6 Continued Payment Period. "Continued Payment Period"
shall have the meaning set forth in Section 3.1(a).
2. Benefits and Duties During Employment; Termination of Employment.
----------------------------------------------------------------
2.1 Base Salary. Your current annual base salary is $230,000, payable in
24 equal semi-monthly amounts, subject to required withholdings. Your
base salary will be reviewed and may be adjusted annually. Your base
salary will not be reduced from the current level or from any future,
higher levels without your written concurrence, unless such reduction
is in connection with your disability and in accordance with the
Company's established disability income protection plan.
2.2 Management Bonus. For the fiscal year ending January 31, 1995, your
target bonus is 40% of your annual base salary under the Company's
Management Incentive Bonus Plan ("MIB Plan"). Your target bonus
percentage under the MIB Plan will not be reduced from the current
level or from any future, higher levels without your written
concurrence, unless such reduction is in connection with your
disability and in accordance with the Company's established
disability income protection plan. The Company may modify the MIB
Plan in the future; provided that in the event of any such
modification, the Company will use reasonable efforts to provide you
with a bonus opportunity under the modified plan that is equivalent
to your opportunity under the current MIB Plan.
2.3 Other Employee Benefits. You will continue to be eligible for all
employee benefits generally available to employees of the Company,
and to the special benefit programs in which you are currently
participating, or in which you are hereafter eligible to participate.
These special benefits include but are not limited to:
2.3.1 Supplemental Retirement Benefit Plan, adopted September 1,
1985, as amended on August 10, 1993, and as further amended
on June 9, 1994, as the same may be further amended from
time to time by mutual agreement of the Employee and the
Company.
<PAGE>
Mr. John H. Morrow
June 9, 1994
Page 5
2.3.2 Company Automobile, including reimbursement for automobile
expenses.
2.3.3 Shadow Glen Golf Club Membership, including reimbursement
for monthly dues, special assessments and expenses incurred
in connection with business usage of club services and
facilities. You may direct the Company to transfer the
ownership of this membership to you, or to pay to you an
amount equal to the original acquisition cost of such
membership, by giving notice to the Company at any time
within three months after the Employment Termination Date.
2.3.4 Life insurance and income tax and estate planning services,
subject to currently established annual limits.
2.4 Limitation on Outside Activities. You agree to devote your full
business time and efforts to the rendition of such services to the
Company as may be designated by the Company, subject, however, to
temporary illness and customary vacations. You will at all times be
subject to the direction and supervision of the CEO. You may devote a
reasonable amount of time to civic and community affairs but shall
not perform services during the term of your employment for any other
business organization in any capacity without the prior consent of
the CEO.
2.5 Employment Termination. Your employment with the Company shall
continue until either you or the Company give written notice to the
other of termination of your employment.
3. Rights upon Termination of Employment.
-------------------------------------
3.1 Rights upon Termination by Company other than for Cause, or by
Employee for Good Reason. If the Company terminates your employment
other than for Cause prior to your Normal Retirement Date, or if you
terminate your employment for Good Reason prior to your Normal
Retirement Date, then the Company shall have the following
obligations to you:
(a) During the applicable Continued Payment Period, the Company
shall continue to pay to you on an annual basis your annual base
salary in effect immediately prior the Employment Termination Date
plus the annual average of your incentive bonus payments under the
MIB Plan or
<PAGE>
Mr. John H. Morrow
June 9, 1994
Page 6
any successor thereto with respect to the three full fiscal years
immediately preceding the Employment Termination Date (the "Average
Annual Incentive Payment"), such amounts to be computed without
regard to any reductions which may have occurred in breach of this
Agreement or following a Change in Control. Such payments shall be
made in equal installments on a semi-monthly basis, and shall be
subject to all required withholdings. The Continued Payment Period
shall commence on the Employment Termination Date, and shall be two
years if the Employment Termination Date occurs before the first
anniversary of this Agreement. The Continued Payment Period
applicable hereunder shall be increased by three months on each
anniversary of the date of this Agreement which occurs prior to the
Employment Termination Date, provided, that the Continued Payment
Period shall not exceed three years.
(b) Within 90 days following the Employment Termination Date,
the Company shall pay to you, subject to required withholdings, a
one-time bonus equal to the product of (i) the fraction of a full
year represented by the period from the beginning of the fiscal year
to the Employment Termination Date, and (ii) the Average Annual
Incentive Payment. No other management incentive payment or bonus
will be payable with respect to the fiscal year in which the
Employment Termination Date occurs.
(c) As soon as practical following the Employment Termination Date,
the Company shall will pay to you the market value, as of close of
business on the Employment Termination Date, of any unvested
restricted stock awarded to you, subject to required withholdings.
3.2 Death Benefits. If you are terminated by the Company other than for
Cause or terminate your employment for Good Reason, and thereafter
you die during the applicable Continued Payment Period, the Company
shall be obligated to pay to your spouse, if surviving, and otherwise
to your estate, the amounts to which you would have been entitled
under Section 3.1 had you survived.
3.3 No Obligation To Mitigate. You shall not be required to mitigate
damages or the amount of any payment provided for under this
Agreement by seeking other employment or otherwise, nor shall the
amount of any payment provided for under this Agreement be reduced by
any compensation earned by you as the result of employment by another
employer after the Employment Termination Date, or otherwise.
<PAGE>
Mr. John H. Morrow
June 9, 1994
Page 7
3.4 Other Rights. The provisions of this Agreement, and any payment
provided for hereunder, shall not reduce any amounts otherwise
payable, or in any way diminish your existing rights or rights which
would accrue solely as a result of the passage of time, under any
benefit or incentive plan, employment agreement or other contract,
plan or arrangement. As soon as practical following the Employment
Termination Date, you will receive cash payment(s) for: (a) the value
of your earned but unused vacation time as of the Employment
Termination Date in accordance with then current Company policy, and
(b) the value of your deferred compensation account in accordance
with your then current payment election.
4. Successor to Company. The Company shall require any successor or assignee,
whether direct or indirect, by purchase, merger, consolidation or otherwise
to all or substantially all the business or assets of the Company,
expressly and unconditionally to assume and agree to perform the Company's
obligations under this Agreement, in the same manner and to the same extent
that the Company would be required to perform if no such succession or
assignment had taken place. In such event, the term "Company," as used in
this Agreement, shall mean the Company and any successor or assignee to the
business or assets which by reason hereof becomes bound by the terms and
provisions of this Agreement.
5. Non-Competition. During your employment and, if applicable, during the
Continued Payment Period under Section 3.1, you agree that you will not
directly or indirectly compete with the Company, or engage in, or act as an
officer, director, employee, or agent of any person or entity that is
engaged in, any business in which the Company is engaged as of the
Employment Termination Date, without the written approval of the CEO. The
foregoing shall not prohibit you from investing in any securities of a
corporation whose securities, or any of them, are listed on a national
securities exchange or traded in the over-the-counter market so long as you
shall own less than 3% of the outstanding voting stock of such corporation.
6. Confidentiality. During your employment and at all times thereafter, you
will not divulge to anyone or use for your own benefit or the benefit of
any other person or entity any information concerning the Company, its
businesses, operations, products, plans, employees, or otherwise, including
without limitation trade secrets and other proprietary information, except
for information that has been published by or with the consent of the
Company and is as a
<PAGE>
Mr. John H. Morrow
June 9, 1994
Page 8
result thereof generally available to the public, or information reasonably
required by you for the preparation of personal tax returns.
7. Miscellaneous.
-------------
7.1. No Assignment. No benefit hereunder shall be subject to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrances or
charge, and any attempt to do so shall be void.
7.2 Notices. All notices hereunder shall be in writing, and shall be
delivered in person, by facsimile or by certified mail-return receipt
requested. Notices shall be delivered as follows:
If to the Company:
Chief Executive Officer
Puritan-Bennett Corporation
9401 Indian Creek Parkway
Overland Park, Kansas 66225
If to the Employee:
Mr. John H. Morrow
10231 Catalina
Overland Park, Kansas 66207
Either party may change its address for notice by giving notice to
the other party of a new address in accordance with the foregoing
provisions.
7.2 Governing Law. This Agreement shall be governed by the laws of the
State of Kansas.
7.3 Disputes. In the event of any dispute between the Company and
Employee arising out of this Agreement, the Company's then current
Alternative Dispute Resolution Procedure will be followed (a copy of
the current procedure is attached hereto) and the prevailing party
shall be entitled to recover its reasonable attorneys' fees and
expenses incurred in connection with the enforcement of its rights
hereunder.
<PAGE>
Mr. John H. Morrow
June 9, 1994
Page 9
7.4 Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction
or other authority to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions
of this Agreement shall remain in full force and effect and
shall in no way be affected, impaired or invalidated.
7.5 Descriptive Headings. Descriptive headings of the several
paragraphs of this Agreement are inserted for convenience only
and shall not control or affect the meaning or construction of
any of the provisions hereof.
Please acknowledge your agreement to the foregoing Agreement by signing the
enclosed counterpart of this letter and returning it to the Company.
Very truly yours,
PURITAN-BENNETT CORPORATION
By: /s/ Burton A. Dole, Jr.
----------------------------
President
Agreed to and accepted:
/s/ John H. Morrow
- - -----------------------------
JOHN H. MORROW
<PAGE>
Exhibit 10d
PURITAN-BENNETT CORPORATION
MANAGEMENT INCENTIVE BONUS PLAN A
(Revised May 11, 1994)
Puritan-Bennett's Incentive Bonus Plan A has been established to provide an
incentive to corporate officers (other than the Vice President, Quality and
Regulatory Affairs, who is covered by Plan B) to attain the highest performance
possible each year. The Plan provides key managers with an opportunity to add
to their total compensation if prescribed levels of return on assets are
attained and/or if other important non-financial objectives are achieved. It is
designed to retain and reward capable managers during periods of rebuilding and
investment, as well as in times of high profitability, and to recognize
extraordinary financial performance by groups/divisions and on a corporate
basis. Details of the Plan follow:
I. Management Incentive Bonus Calculation
--------------------------------------
Bonus targets for each participant in the Plan will be established upon
entrance of the participant into the Plan using the percentage of salary
guidelines prescribed in Attachment A and reviewed periodically. To
achieve the bonus target both the corporation and, in the case of
group/divisional personnel, the individual group/division must attain a
prescribed Return On Assets (ROA) as defined in Tables I and II. For FY
1995, the 1987 Corporate ROA
1
<PAGE>
schedule and factors continue to apply except that the ROA schedule has been
converted to an after-tax schedule at a 35% tax rate. This change has been made
at both the Corporate and group/division levels in recognition of the fact that
our decision to establish a manufacturing operation in Ireland tends to decrease
pretax profits but decrease taxes also. For FY 1995, Table I is intended to be
all inclusive (i.e., include Medicomp, any unused land or major building program
in-progress assets, and the vacant El Segundo, California facility) except for
FOxS income, expenses and assets, if any. Table II applies to the Bennett Group,
which does not include FOxS, the Puritan Group, and Aero Systems, and is
intended to exclude any unused land (Carlsbad, Rancho Bernardo, Cedar Creek, and
Lenexa), or any major building program in-progress assets. For the corporation,
ROA has been defined as the pre-bonus after-tax annual profit, excluding certain
extraordinary gains and losses, divided by the sum of the ending total assets
for each quarter, in turn divided by four.
For the groups/divisions, ROA has been defined as the pre-bonus after-tax profit
(after Corporate unallocated expenses, primarily interest, are allocated to the
groups/divisions), excluding certain extraordinary gains and losses, divided by
the ending sum of inventory, receivables, net fixed assets and Corporate assets
(except
2
<PAGE>
for unused land and buildings as discussed above) not directly identifiable
to a particular group/division (which are allocated to such group/division)
for each quarter, in turn divided by four. Such unidentifiable corporate
assets are allocated based on the ratio of the sales of the respective
group/division to total corporate sales. P-B Ireland assets will be
allocated directly to the groups/divisions where such assets are so
identifiable; unidentifiable Ireland assets will be allocated based upon
the mix of Ireland inter-company sales. Corporate unallocated expenses are
prorated among the groups/divisions based on their ratios of group/division
assets to total corporate assets.
The ROA formula calculation determines 70% of a participant's bonus. The
remaining 30% is to be based upon objectives related to Business
Improvement. For those individuals in a position to exert significant
influence on FDA, FAA, and/or ISO control and compliance, FY 95 Business
Improvement Objectives are to be primarily, if not entirely, control and
compliance related.
The ROA portion of each participant's bonus, where applicable, will be
computed in accordance with the scales on Tables I and II. In the formula
calculation, bonus payouts for all group/division participants will be
weighted 40% based on Corporate ROA and 60% on
3
<PAGE>
group/divisional ROA. For all others, the bonus computation will be based
100% on Corporate ROA.
An example of a bonus calculation is set forth in Appendix I.
The maximum bonus payment to each participant in the incentive bonus plan
is limited to 100% of the current year's earned salary (excluding bonus).
II. Administration
--------------
a) Selection of Participants and Bonus Levels
------------------------------------------
Selection of participants and bonus levels will be established by the
CEO and/or COO, subject to Board Compensation Committee and full Board
approval for certain individuals.
b) Determination of Bonus Award
----------------------------
Following the completion of the year-end audit, the actual bonus for
each participant will be calculated according to:
(i) the ROA formula, except in the case of Quality and
Regulatory Affairs professionals;
(ii) accomplishments against predetermined objectives.
4
<PAGE>
The appraisal of performance against Business Improvement Objectives
will be made for each participant by the immediate supervisor, jointly
with the Vice President, Quality and Regulatory Affairs in the case of
those participants in a position to exert significant influence on FDA
and/or ISO control and compliance, and forwarded to the CEO and/or COO
for preliminary approval, again subject to the final approval of the
Board Compensation Committee and full Board approval for certain
individuals.
c) Approval by Compensation Committee
----------------------------------
The Compensation Committee of the Board of Directors will approve
proposed bonuses for the Chairman, CEO, all Corporate Officers and all
managers reporting to the CEO, whether or not they are Corporate
Officers. The CEO and/or COO will approve all other proposed bonuses.
The CEO/COO and Compensation Committee reserve the right to withhold
some or all of the bonus otherwise earned under the financial/ROA
formula portion of the plan in cases of significant shortcomings with
respect to regulatory control and compliance objectives. Also, in the
unlikely event that Return on Assets and Earnings Per Share exhibit
significantly divergent trends, the Compensation Committee and CEO/COO
reserve the right to modify the bonus program formula based upon actual
results.
5
<PAGE>
d) Communication
-------------
Participants will be informed of their bonus target and performance
levels required to achieve the incentive bonus during April of the
February-January fiscal year.
e) Other Considerations
--------------------
1. Bonus awards will be paid only to participants who are actively
employed as of the bonus calculation date (January 31).
2. Profit for bonus determination will be inclusive of any changes in
reserves, but will normally exclude any capital gains or losses and
other unusual gains or losses such as proceeds of fire or casualty
insurance. In cases of uncertainty the decision of the CEO will be
final.
3. The addition of new participants, including new employees, to the
plan during the year and the bonus levels for these individuals, must
be approved initially by the CEO and/or COO and finally by the
Compensation Committee. Any changes for participants, regardless of
the reason, (promotion, change of responsibility, upgrading of salary
in the same position) must be similarly approved.
In any case approval must be obtained prior to communication to the
individual concerned.
6
<PAGE>
4. Unless otherwise approved by the CEO and/or COO, this Incentive
Bonus Plan will be the sole Incentive Plan under which participants
included in this Plan shall be compensated.
5. In the event of the routine retirement of a participant during the
Management Incentive Bonus Plan year, the amount of bonus award will
be based on the number of months worked as a percent of the full
year and will reflect results of the full plan year.
7
<PAGE>
PURITAN-BENNETT CORPORATION
Management Incentive
Bonus Target Level
Category: (% of Salary)
- - -------- -------------
A. Chairman, President 35 - 65%
B. Senior Corporate Officers 25 - 50%
C. Heads of substantial business
units and other officers 15 - 30%
D. Other key managers Up to 25%
8
<PAGE>
TABLE I
<TABLE>
<CAPTION>
Return on Net
Assets (%) as B O N U S P O O L
Defined in Sec. I
Pre-Bonus Pre Tax Pre-Bonus After-Tax
- - ----------------- -------------------
At Least Not More At Nor More Corporate Corporate Corporate
Than Least Than 1985 1986 1987 & Beyond
<S> <C> <C> <C> <C> <C> <C>
5.0 5.5 3.2 3.6 .400 0 0
5.5 6.0 3.6 3.9 .475 0 0
6.0 6.5 3.9 4.2 .550 0 0
6.5 7.0 4.2 4.6 .625 0 .025
7.0 7.5 4.6 4.9 .700 .400 .100
7.5 8.0 4.9 5.2 .775 .500 .175
8.0 8.5 5.2 5.5 .850 .600 .250
8.5 9.0 5.5 5.8 .925 .700 .325
9.0 9.5 5.8 6.2 1.000 .800 .400
9.5 10.0 6.2 6.5 1.050 .900 .475
- - -----------------------------------------------------------------------------------
10.0 10.5 6.5 6.8 1.100 1.000 .550
10.5 11.0 6.8 7.2 1.150 1.050 .625
11.0 11.5 7.2 7.5 1.200 1.100 .700
11.5 12.0 7.5 7.8 1.250 1.150 .775
12.0 12.5 7.8 8.1 1.300 1.200 .850
12.5 13.0 8.1 8.4 1.350 1.250 1.000
13.0 13.5 8.4 8.8 1.400 1.300 1.100
13.5 14.0 8.8 9.1 1.450 1.350 1.200
14.0 14.5 9.1 9.4 1.500 1.400 1.300
14.5 15.0 9.4 9.8 1.550 1.450 1.400
- - -----------------------------------------------------------------------------------
15.0 15.5 9.8 10.1 1.600 1.500 1.500
15.5 16.0 10.1 10.4 1.650 1.550 1.600
16.0 16.5 10.4 10.7 1.700 1.600 1.700
16.5 17.0 10.7 11.0 1.750 1.650 1.800
17.0 17.5 11.0 11.4 1.800 1.700 1.900
17.5 18.0 11.4 11.7 1.850 1.750 2.000
18.0 18.5 11.7 12.0 1.900 1.800 2.071
18.5 19.0 12.0 12.4 1.950 1.850 2.143
19.0 19.5 12.4 12.7 2.000 1.900 2.214
19.5 20.0 12.7 13.0 2.050 1.950 2.286
- - -----------------------------------------------------------------------------------
20.0 20.5 13.0 13.3 2.000 2.357
20.5 21.0 13.3 13.6 2.100 2.429
21.0 21.5 13.6 14.0 2.200 2.500
21.5 22.0 14.0 14.3 2.300 2.572
22.0 22.5 14.3 14.6 2.400 2.643
22.5 23.0 14.6 15.0 2.500 2.715
23.0 23.5 15.0 15.3 2.786
23.5 24.0 15.3 15.6 2.858
24.0 24.5 15.6 15.9 2.929
24.5 25.0 15.9 16.2 3.000
- - -----------------------------------------------------------------------------------
25.0 or Higher 16.2 or higher 3.000
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Return on Net B O N U S P O O L
Assets (%) as
Defined in Sec. I
Pre-Bonus Pre Tax Pre-Bonus After-Tax BUSINESS UNIT RESULTS
- - ------------------- ------------------- (PURITAN GROUP, BENNETT
At Least Not More At Not More PURITAN GROUP GROUP & AERO SYSTEMS)
Than Least Than 1986 1987-1989 FOR 1990, AND BEYOND
<S> <C> <C> <C> <C> <C> <C>
- - -------------------------------------------------------------------------------------------------
7.0 7.5 4.6 4.9 0 0 0
7.5 8.0 4.9 5.2 0 0 .063
8.0 8.5 5.2 5.5 0 0 .125
8.5 9.0 5.5 5.8 0 0 .188
9.0 9.5 5.8 6.2 0 0 .250
9.5 10.0 6.2 6.5 0 0 .313
- - -------------------------------------------------------------------------------------------------
10.0 10.5 6.5 6.8 0 0 .375
10.5 11.0 6.8 7.2 0 0 .438
11.0 11.5 7.2 7.5 .400 .400 .500
11.5 12.0 7.5 7.8 .475 .475 .563
12.0 12.5 7.8 8.1 .550 .550 .625
12.5 13.0 8.1 8.4 .625 .625 .688
13.0 13.5 8.4 8.8 .700 .700 .750
13.5 14.0 8.8 9.1 .775 .775 .813
14.0 14.5 9.1 9.4 .850 .850 .875
14.5 15.0 9.4 9.8 .925 .925 .938
- - -------------------------------------------------------------------------------------------------
15.0 15.5 9.8 10.1 1.000 1.000 1.000
15.5 16.0 10.1 10.4 1.075 1.067 1.063
16.0 16.5 10.4 10.7 1.150 1.134 1.125
16.5 17.0 10.7 11.0 1.225 1.201 1.188
17.0 17.5 11.0 11.4 1.300 1.268 1.250
17.5 18.0 11.4 11.7 1.375 1.335 1.313
18.0 18.5 11.7 12.0 1.450 1.402 1.375
18.5 19.0 12.0 12.4 1.525 1.469 1.438
19.0 19.5 12.4 12.7 1.600 1.536 1.500
19.5 20.0 12.7 13.0 1.675 1.603 1.563
- - -------------------------------------------------------------------------------------------------
20.0 20.5 13.0 13.3 1.750 1.670 1.625
20.5 21.0 13.3 13.6 1.825 1.737 1.688
21.0 21.5 13.6 14.0 1.900 1.804 1.750
21.5 22.0 14.0 14.3 1.975 1.871 1.813
22.0 22.5 14.3 14.6 2.050 1.938 1.875
22.5 23.0 14.6 15.0 2.005 1.938
23.0 23.5 15.0 15.3 2.072 2.000
23.5 24.0 15.3 15.6 2.139 2.063
24.0 24.5 15.6 15.9 2.206 2.125
24.5 25.0 15.9 16.2 2.273 2.188
- - -------------------------------------------------------------------------------------------------
25.0 25.5 16.2 16.6 2.340 2.250
25.5 26.0 16.6 16.9 2.407 2.313
26.0 26.5 16.9 17.2 2.474 2.375
26.5 27.0 17.2 17.6 2.541 2.438
27.0 27.5 17.6 17.9 2.608 2.500
27.5 28.0 17.9 18.2 2.675 2.563
28.0 28.5 18.2 18.5 2.742 2.625
28.5 29.0 18.5 18.8 2.809 2.688
29.0 29.5 18.8 19.2 2.876 2.750
29.5 30.0 19.2 19.5 2.943 2.813
- - -------------------------------------------------------------------------------------------------
30.0 30.5 19.5 19.8 3.000 2.875
30.5 to 31.0 19.8 20.2 2.938
31.0 or higher 20.2 or higher 3.000
</TABLE>
10
<PAGE>
APPENDIX I
ILLUSTRATIVE EXAMPLE
PARTICIPANT - - A
BUSINESS UNIT - - PURITAN GROUP, BENNETT GROUP
(ex. FOxS) & AERO SYSTEMS
<TABLE>
<CAPTION>
BONUS
BONUS PERCENT
ALLOCATION X MULTIPLIER = EARNED
---------- ---------- -------
<S> <C> <C> <C>
AFTER-TAX
ROA FORMULA - -
BUSINESS UNIT ROA = 42% 1.75/1/ 73.5%
13.8%
CORPORATE ROA = 10.2% 28% 1.60/2/ 44.8%
----
70%
BUSINESS
IMPROVEMENT OBJECTIVES 30% .75 22.5%
----
TOTAL 100% 140.8%
X
TARGET % OF SALARY 15%
=
PAYOUT % OF SALARY 21.12%
X
EARNED SALARY -- FY 1995 $70,000
=
BONUS EARNED $14,784
</TABLE>
- - ------------------------
/1/ From Table II.
/2/ From Table I.
11
<PAGE>
Exhibit 10e
PURITAN-BENNETT CORPORATION
MANAGEMENT INCENTIVE BONUS PLAN B
(Revised May 11, 1994)
Puritan-Bennett's Incentive Bonus Plan has been established to provide an
incentive to key management employees to attain the highest performance possible
each year. The Plan provides key managers with an opportunity to add to their
total compensation if prescribed levels of return on assets are attained and/or
if other important non-financial objectives are achieved. It is designed to
retain and reward capable managers during periods of rebuilding and investment,
as well as in times of high profitability, and to recognize extraordinary
financial performance by groups/divisions and on a corporate basis. Details of
the Plan follow:
I. Management Incentive Bonus Calculation
--------------------------------------
Bonus targets for each participant in the Plan will be established upon
entrance of the participant into the Plan using the percentage of salary
guidelines prescribed in Attachment A and reviewed periodically. Except
for Quality and Regulatory Affairs professionals, to achieve the bonus
target both the corporation and, in the case of group/divisional personnel,
the individual group/division must attain a prescribed Return On Assets
(ROA) as defined in Tables I and II. For FY 1995, the 1987 Corporate ROA
schedule and factors continue to apply except that the ROA
1
<PAGE>
schedule has been converted to an after-tax schedule at a 35% tax rate.
This change has been made at both the Corporate and group/division levels
in recognition of the fact that our decision to establish a manufacturing
operation in Ireland tends to decrease pretax profits but decrease taxes
also. For FY 1995, Table I is intended to be all inclusive (i.e., include
Medicomp, any unused land or major building program in-progress assets, and
the vacant El Segundo, California facility) except for FOxS income,
expenses and assets, if any. Table II applies to the Bennett Group, which
does not include FOxS, the Puritan Group, and Aero Systems, and is intended
to exclude any unused land (Carlsbad, Rancho Bernardo, Cedar Creek, and
Lenexa), or any major building program in-progress assets. For the
corporation, ROA has been defined as the pre-bonus after-tax annual profit,
excluding certain extraordinary gains and losses, divided by the sum of the
ending total assets for each quarter, in turn divided by four.
For the groups/divisions, ROA has been defined as the pre-bonus after-tax
profit (after Corporate unallocated expenses, primarily interest, are
allocated to the groups/divisions), excluding certain extraordinary gains
and losses, divided by the ending sum of inventory, receivables, net fixed
assets and Corporate assets (except for unused land and buildings as
discussed above) not
2
<PAGE>
directly identifiable to a particular group/division (which are allocated
to such group/division) for each quarter, in turn divided by four. Such
unidentifiable corporate assets are allocated based on the ratio of the
sales of the respective group/division to total corporate sales. P-B
Ireland assets will be allocated directly to the groups/divisions where
such assets are so identifiable; unidentifiable Ireland assets will be
allocated based upon the mix of Ireland inter-company sales. Corporate
unallocated expenses are prorated among the groups/divisions based on their
ratios of group/division assets to total corporate assets.
Except for Quality and Regulatory Affairs professionals, the ROA formula
calculation determines 50% of a participant's bonus. The remaining 50% is
to be based upon objectives related to Business Improvement and this 50% is
also subject to a multiplier that can range from 0 to 2.0 Full attainment
of objectives would normally translate into a 1.0 multiplier. Exceeding
objectives would normally translate into a multiplier higher than 1.0 and
vice versa. For those individuals in a position to exert significant
influence on FDA, FAA, and/or ISO control and compliance, FY 95 Business
Improvement Objectives are to be primarily, if not entirely, control and
compliance related. In the case of Quality and Regulatory Affairs
professionals, 100% of the
3
<PAGE>
participant's bonus is to be based upon objectives related to regulatory
control and compliance-related Business Improvement Objectives.
The ROA portion of each participant's bonus, where applicable, will be
computed in accordance with the scales on Tables I and II. In the formula
calculation, bonus payouts for all group/division participants will be
weighted 40% based on Corporate ROA and 60% on group/divisional ROA. For
all others, the bonus computation will be based 100% on Corporate ROA.
An example of a bonus calculation is set forth in
Appendix I.
The maximum bonus payment to each participant in the incentive bonus plan
is limited to 100% of the current year's earned salary (excluding bonus).
II. Administration
--------------
a) Selection of Participants and Bonus Levels
------------------------------------------
Selection of participants and bonus levels will be established by the
CEO and/or COO, subject to Board Compensation Committee and full Board
approval for certain individuals.
4
<PAGE>
b) Determination of Bonus Award
----------------------------
Following the completion of the year-end audit, the actual bonus for
each participant will be calculated according to:
(i) the ROA formula, except in the case of Quality and
Regulatory Affairs professionals;
(ii) accomplishments against predetermined objectives.
The appraisal of performance against Business Improvement Objectives
will be made for each participant by the immediate supervisor, jointly
with the Vice President, Quality and Regulatory Affairs in the case of
those participants in a position to exert significant influence on FDA
and/or ISO control and compliance, and forwarded to the CEO and/or COO
for final approval, again subject to Board Compensation Committee and
full Board approval for certain individuals.
c) Approval by Compensation Committee
----------------------------------
The Compensation Committee of the Board of Directors will approve
proposed bonuses for the Chairman, CEO, all Corporate Officers and all
managers reporting to the CEO, whether or not they are Corporate
Officers. The CEO and/or COO will approve all other proposed bonuses.
The CEO/COO and Compensation Committee reserve the right to withhold
some or all of the bonus otherwise earned under the financial/ROA
formula
5
<PAGE>
portion of the plan in cases of significant shortcomings with respect to
regulatory control and compliance objectives. Also, in the unlikely
event that Return on Assets and Earnings Per Share exhibit significantly
divergent trends, the Compensation Committee and CEO/COO reserve the
right to modify the bonus program formula based upon actual results.
d) Communication
-------------
Participants will be informed of their bonus target and performance
levels required to achieve the incentive bonus during April of the
February-January fiscal year.
e) Other Considerations
--------------------
1. Bonus awards will be paid only to participants who are actively
employed as of the bonus calculation date (January 31).
2. Profit for bonus determination will be inclusive of any changes in
reserves, but will normally exclude any capital gains or losses and
other unusual gains or losses such as proceeds of fire or casualty
insurance. In cases of uncertainty the decision of the CEO will be
final.
3. The addition of new participants, including new employees, to the
plan during the year and the bonus levels for these individuals, must
be approved by the CEO and/or COO. Any changes for participants,
regardless of the reason, (promotion, change of responsibility,
upgrading of salary in the same
6
<PAGE>
position) must also be approved by the CEO and/or COO.
In any case approval must be obtained prior to communication to the
individual concerned.
4. Unless otherwise approved by the CEO and/or COO, this Incentive
Bonus Plan will be the sole Incentive Plan under which participants
included in this Plan shall be compensated.
5. In the event of the routine retirement of a participant during the
Management Incentive Bonus Plan year, the amount of bonus award will
be based on the number of months worked as a percent of the full
year and will reflect results of the full plan year.
III. Special Award Program
---------------------
A special award program may be established to provide one-time awards to
outstanding and deserving employees not participating in the Management
Incentive Bonus Plan. The amount available for such awards shall be
limited to 10% of the maximum awards available to participants of the
Management Incentive Bonus Plan, under the formula relating to that plan.
The CEO and/or COO shall approve all special awards.
7
<PAGE>
PURITAN-BENNETT CORPORATION
Management Incentive
Bonus Target Level
Category: (% of Salary)
- - -------- -------------
A. Chairman, President 35 - 65%
B. Senior Corporate Officers 25 - 50%
C. Heads of substantial business
units and other officers 15 - 30%
D. Other key managers Up to 25%
8
<PAGE>
TABLE I
<TABLE>
<CAPTION>
Return on Net
Assets (%) as B O N U S P O O L
Defined in Sec. I
Pre-Bonus Pre Tax Pre-Bonus After-Tax
- - ----------------- -------------------
At Least Not More At Nor More Corporate Corporate Corporate
Than Least Than 1985 1986 1987 & Beyond
<S> <C> <C> <C> <C> <C> <C>
5.0 5.5 3.2 3.6 .400 0 0
5.5 6.0 3.6 3.9 .475 0 0
6.0 6.5 3.9 4.2 .550 0 0
6.5 7.0 4.2 4.6 .625 0 .025
7.0 7.5 4.6 4.9 .700 .400 .100
7.5 8.0 4.9 5.2 .775 .500 .175
8.0 8.5 5.2 5.5 .850 .600 .250
8.5 9.0 5.5 5.8 .925 .700 .325
9.0 9.5 5.8 6.2 1.000 .800 .400
9.5 10.0 6.2 6.5 1.050 .900 .475
- - ----------------------------------------------------------------------------------
10.0 10.5 6.5 6.8 1.100 1.000 .550
10.5 11.0 6.8 7.2 1.150 1.050 .625
11.0 11.5 7.2 7.5 1.200 1.100 .700
11.5 12.0 7.5 7.8 1.250 1.150 .775
12.0 12.5 7.8 8.1 1.300 1.200 .850
12.5 13.0 8.1 8.4 1.350 1.250 1.000
13.0 13.5 8.4 8.8 1.400 1.300 1.100
13.5 14.0 8.8 9.1 1.450 1.350 1.200
14.0 14.5 9.1 9.4 1.500 1.400 1.300
14.5 15.0 9.4 9.8 1.550 1.450 1.400
- - ----------------------------------------------------------------------------------
15.0 15.5 9.8 10.1 1.600 1.500 1.500
15.5 16.0 10.1 10.4 1.650 1.550 1.600
16.0 16.5 10.4 10.7 1.700 1.600 1.700
16.5 17.0 10.7 11.0 1.750 1.650 1.800
17.0 17.5 11.0 11.4 1.800 1.700 1.900
17.5 18.0 11.4 11.7 1.850 1.750 2.000
18.0 18.5 11.7 12.0 1.900 1.800 2.071
18.5 19.0 12.0 12.4 1.950 1.850 2.143
19.0 19.5 12.4 12.7 2.000 1.900 2.214
19.5 20.0 12.7 13.0 2.050 1.950 2.286
- - ----------------------------------------------------------------------------------
20.0 20.5 13.0 13.3 2.000 2.357
20.5 21.0 13.3 13.6 2.100 2.429
21.0 21.5 13.6 14.0 2.200 2.500
21.5 22.0 14.0 14.3 2.300 2.572
22.0 22.5 14.3 14.6 2.400 2.643
22.5 23.0 14.6 15.0 2.500 2.715
23.0 23.5 15.0 15.3 2.786
23.5 24.0 15.3 15.6 2.858
24.0 24.5 15.6 15.9 2.929
24.5 25.0 15.9 16.2 3.000
- - ----------------------------------------------------------------------------------
25.0 or Higher 16.2 or higher 3.000
</TABLE>
9
<PAGE>
TABLE II
Return on Net B O N U S P O O L
Assets (%) as
Defined in Sec. I
<TABLE>
<CAPTION>
Pre-Bonus Pre Tax Pre-Bonus After-Tax BUSINESS UNIT RESULTS
- - ----------------------------- --------------------------- (PURITAN GROUP, BENNETT
At Least Not More At Not More PURITAN GROUP GROUP & AERO SYSTEMS)
Than Least Than 1986 1987-1989 FOR 1990, AND BEYOND
- - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
7.0 7.5 4.6 4.9 0 0 0
7.5 8.0 4.9 5.2 0 0 .063
8.0 8.5 5.2 5.5 0 0 .125
8.5 9.0 5.5 5.8 0 0 .188
9.0 9.5 5.8 6.2 0 0 .250
9.5 10.0 6.2 6.5 0 0 .313
- - ---------------------------------------------------------------------------------------------------------------------
10.0 10.5 6.5 6.8 0 0 .375
10.5 11.0 6.8 7.2 0 0 .438
11.0 11.5 7.2 7.5 .400 .400 .500
11.5 12.0 7.5 7.8 .475 .475 .563
12.0 12.5 7.8 8.1 .550 .550 .625
12.5 13.0 8.1 8.4 .625 .625 .688
13.0 13.5 8.4 8.8 .700 .700 .750
13.5 14.0 8.8 9.1 .775 .775 .813
14.0 14.5 9.1 9.4 .850 .850 .875
14.5 15.0 9.4 9.8 .925 .925 .938
- - ---------------------------------------------------------------------------------------------------------------------
15.0 15.5 9.8 10.1 1.000 1.000 1.000
15.5 16.0 10.1 10.4 1.075 1.067 1.063
16.0 16.5 10.4 10.7 1.150 1.134 1.125
16.5 17.0 10.7 11.0 1.225 1.201 1.188
17.0 17.5 11.0 11.4 1.300 1.268 1.250
17.5 18.0 11.4 11.7 1.375 1.335 1.313
18.0 18.5 11.7 12.0 1.450 1.402 1.375
18.5 19.0 12.0 12.4 1.525 1.469 1.438
19.0 19.5 12.4 12.7 1.600 1.536 1.500
19.5 20.0 12.7 13.0 1.675 1.603 1.563
- - ---------------------------------------------------------------------------------------------------------------------
20.0 20.5 13.0 13.3 1.750 1.670 1.625
20.5 21.0 13.3 13.6 1.825 1.737 1.688
21.0 21.5 13.6 14.0 1.900 1.804 1.750
21.5 22.0 14.0 14.3 1.975 1.871 1.813
22.0 22.5 14.3 14.6 2.050 1.938 1.875
22.5 23.0 14.6 15.0 2.005 1.938
23.0 23.5 15.0 15.3 2.072 2.000
23.5 24.0 15.3 15.6 2.139 2.063
24.0 24.5 15.6 15.9 2.206 2.125
24.5 25.0 15.9 16.2 2.273 2.188
- - ---------------------------------------------------------------------------------------------------------------------
25.0 25.5 16.2 16.6 2.340 2.250
25.5 26.0 16.6 16.9 2.407 2.313
26.0 26.5 16.9 17.2 2.474 2.375
26.5 27.0 17.2 17.6 2.541 2.438
27.0 27.5 17.6 17.9 2.608 2.500
27.5 28.0 17.9 18.2 2.675 2.563
28.0 28.5 18.2 18.5 2.742 2.625
28.5 29.0 18.5 18.8 2.809 2.688
29.0 29.5 18.8 19.2 2.876 2.750
29.5 30.0 19.2 19.5 2.943 2.813
- - ---------------------------------------------------------------------------------------------------------------------
30.0 30.5 19.5 19.8 3.000 2.875
30.5 to 31.0 19.8 20.2 2.938
31.0 or higher 20.2 or higher 3.000
</TABLE>
10
<PAGE>
APPENDIX I
ILLUSTRATIVE EXAMPLE
PARTICIPANT - - A
BUSINESS UNIT - - PURITAN GROUP, BENNETT GROUP
(ex. FOxS) & AERO SYSTEMS
<TABLE>
<CAPTION>
BONUS
BONUS PERCENT
ALLOCATION X MULTIPLIER = EARNED
---------- ---------- ------
<S> <C> <C> <C>
AFTER-TAX
ROA FORMULA - -
BUSINESS UNIT ROA = 30% 1.75/1/ 52.5%
13.8%
CORPORATE ROA = 10.2% 20% 1.60/2/ 32.0%
---
50%
BUSINESS
IMPROVEMENT OBJECTIVES 50% 1.00 50.0%
--- -----
TOTAL 100% 134.5%
X
TARGET % OF SALARY 15%
=
PAYOUT % OF SALARY 20.175%
X
EARNED SALARY -- FY 1995 $70,000
=
BONUS EARNED $14,122.50
</TABLE>
- - --------------------
/1/ From Table II.
/2/ From Table I.
11
<PAGE>
EXHIBIT 11
STATEMENT REGARDING COMPUTATION
OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
QUARTER ENDING SIX MONTHS ENDING
JULY 31 JULY 31
---------------------- ------------------------
1994 1993 1994 1993
---------------------- ------------------------
<S> <C> <C> <C> <C>
PRIMARY
Weighted average shares outstanding at end of period 12,502,261 11,902,661 12,455,951 11,917,631
Assuming exercise of options reduced by the number of
shares which could have been purchased with the
proceeds from exercise 45,431 0 50,886 0
----------------------- -----------------------
Shares outstanding for computation of per share earnings 12,547,692 11,902,661 12,506,837 11,917,631
======================= =======================
Net income $4,244,000 $(4,963,000) $7,968,000 $(5,869,000)
======================= =======================
Primary earnings per share $0.34 $(0.42) $0.64 $(0.49)
======================= =======================
FULLY DILUTED
Weighted average shares outstanding at end of period 12,502,261 11,902,661 12,455,951 11,917,631
Assuming exercise of options reduced by the number of
shares which could have been purchased with the
proceeds from exercise 45,431 0 56,099 20,529
----------------------- -----------------------
Shares outstanding for computation of per share earnings 12,547,692 11,902,661 12,512,050 11,938,160
======================= =======================
Net income $4,244,000 $(4,963,000) $7,968,000 $(5,869,000)
======================= =======================
Fully diluted earnings per share $0.34 $(0.42) $0.64 $(0.49)
======================= =======================
REPORTED EARNINGS PER SHARE $0.34 $(0.41) $0.64 $(0.49)
======================= =======================
</TABLE>
The company does not meet the 3% dilution test contained in Accounting
Principles Board Opinion #15, therefore disclosure of diluted earnings per share
on the face of the income statements is not required.
<PAGE>
EXHIBIT 15
(Ernst & Young LLP Letterhead)
Letter Regarding Unaudited Interim Financial Information
The Board of Directors
Puritan Bennett Corporation
We are aware of the incorporation by reference in the following registration
statements of Puritan-Bennett Corporation:
No. 2-98132 on Form S-8 and Form S-3 dated June 23, 1985,
No. 33-6804 on Form S-3 dated July 24, 1986,
No. 33-26495 on Form S-8 and Form S-3 dated January 31, 1989,
No. 33-36497 on Form S-8 dated August 21, 1990, and
No. 33-67634 on Form S-8 dated August 18, 1993,
of our report dated September 12, 1994 relating to the unaudited condensed
consolidated interim financial statements of Puritan-Bennett Corporation and
subsidiaries which are included in its Form 10-Q for the quarter ended July 31,
1994.
Pursuant to Rule 436(c) of the Securities Act of 1933, our reports are not part
of the registration statement prepared or certified by accountants within the
meaning of Section 7 or 11 of the Securities Act of 1933.
/s/ Ernst & Young
ERNST & YOUNG LLP
September 12, 1994
<PAGE>
Exhibit 19
LETTER TO OUR STOCKHOLDERS
Puritan-Bennett Corporation reported earnings of $4,244,000 or $.34 per share
on revenues of $83,993,000 and orders of $82,140,000 for the second quarter
ended July 31, 1994.
First half earnings totaled $7,968,000 or $.64 per share on revenues of
$164,401,000 and orders of $162,253,000. These revenue and order levels
represent increases of approximately 7% and 6%, respectively, over the same
period last year.
Our growth continues to be propelled primarily by the home care portion of our
business for which first half revenues and orders were up 13% and 21%,
respectively. The U.S. hospital market remains sluggish, although interest in
our CliniVision(R) respiratory care management information system continues to
expand with more than 100 systems now installed. Our new ACCTV(TM) product
line is helping our aviation business grow nicely in spite of difficult market
conditions. We expect these basic trends to continue for the foreseeable future.
/s/ Burton A. Dole, Jr.
-----------------------
Burton A. Dole Jr.
Chairman, President and
August 16, 1994 Chief Executive Officer
CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS (UNAUDITED)
Dollars in thousands, except per share data
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JULY 31 JULY 31
-------------------------- --------------------------
1994 1993 1994 1993
-------------------------- --------------------------
<S> <C> <C> <C> <C>
Net Sales $ 83,993 $ 77,914 $ 164,401 $ 153,305
Cost of Goods Sold 48,346 44,519 94,963 86,692
----------- ----------- ----------- -----------
Gross Profit 35,647 33,395 69,438 66,613
Selling and Administrative Expense 24,364 24,315 48,282 47,753
Research and Development Expense 4,964 6,704 9,779 13,253
----------- ----------- ----------- -----------
Operating Profit 6,319 2,376 11,377 5,607
Interest Expense 1,384 1,264 2,600 2,401
Restructuring Charges - 9,014 - 9,014
Other Expense (Income), net (369) 753 (1,181) 469
----------- ----------- ----------- -----------
Income (Loss) Before Income Taxes 5,304 (8,655) 9,958 (6,277)
Provision for (Benefit from) Income Taxes 1,060 (3,692) 1,990 (3,163)
----------- ----------- ----------- -----------
Net Income (Loss) Before Cumulative Effect 4,244 (4,963) 7,968 (3,114)
Cumulative Effect of a Change in Accounting
for Income Taxes - - - 2,755
----------- ----------- ----------- -----------
Net Income (Loss) $ 4,244 $ (4,963) $ 7,968 $ (5,869)
=========== =========== =========== ===========
Weighted Average Number of Shares Outstanding 12,502,261 11,902,661 12,455,951 11,917,631
Net Income (Loss) Before Cumulative Effect Per Share $ .34 $ (.41) $ .64 $ (.26)
Cumulative Effect of a Change in Accounting for
Income Taxes Per Share - - - (.23)
----------- ----------- ----------- -----------
Net Income (Loss) Per Share $ .34 $ (.41) $ .64 $ (.49)
=========== =========== =========== ===========
Dividends Declared Per Share $ .03 $ .03 $ .06 $ .06
=========== =========== =========== ===========
</TABLE>
<PAGE>
CONDENSED CONSOLIDATED
BALANCE SHEETS (UNAUDITED)
Dollars in thousands
<TABLE>
<CAPTION>
JULY 31 January 31
ASSETS 1994 1994
-------- ----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 872 $ 713
Trade notes and accounts receivable, net 72,405 70,137
Inventories:
Finished goods 15,866 16,163
Work in process 4,533 4,437
Raw materials and supplies 34,733 30,894
-------- --------
55,132 51,494
Less excess of FIFO cost over LIFO cost 4,338 4,024
-------- --------
50,794 47,470
Prepaid expenses and other 3,058 5,567
Deferred income tax benefits 10,760 10,760
-------- --------
Total current assets 137,889 134,647
Plant and Equipment 167,996 158,961
Less accumulated depreciation and amortization 72,360 70,068
-------- --------
95,636 88,893
Other Assets, net 32,124 33,054
-------- --------
Total Assets $265,649 $256,594
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 10,844 $ 27,791
Trade accounts payable 13,630 13,937
Employee compensation, payroll taxes and withholdings 7,528 8,015
Accrued self-insurance expenses 1,252 1,299
Other accrued expenses 13,042 21,140
Dividends payable 375 359
Income taxes payable 5,385 3,678
Current maturities of long-term debt 6,660 6,546
-------- --------
Total current liabilities 58,716 82,765
Long-Term Debt, less current maturities 63,336 38,656
Deferred Compensation and Pensions 17,315 17,444
Deferred Income Taxes 55 55
Deferred Revenue 10,275 9,962
Stockholders' Equity:
Common stock, par value $1.00 per share -
Authorized 30,000,000 shares; issued and
outstanding, 12,497,253 shares in July
and 12,427,653 shares in January 12,497 12,428
Additional paid-in capital 36,477 34,794
Retained earnings 68,477 61,736
Deferred stock awards (1,499) (602)
Treasury stock - (644)
-------- --------
Total Stockholders' Equity 115,952 107,712
-------- --------
Total Liabilities and Stockholders' Equity $265,649 $256,594
======== ========
</TABLE>
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS (UNAUDITED)
Dollars in thousands
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JULY 31
-------------------
CASH FLOWS FROM OPERATING ACTIVITIES 1994 1993
-------------------
<S> <C> <C>
Net income (loss) $ 7,968 $ (5,869)
Adjustments to reconcile net income to net cash and
cash equivalents provided by operating activities:
Depreciation and amortization 7,344 7,579
Deferred income tax benefit - (3,671)
Cumulative effect of a change in accounting principles - 2,755
Restructuring charges (5,923) 9,014
Deferred compensation and pensions (129) 996
Provision for losses on accounts receivable 93 568
Asset dispositions, net (477) 63
Shares issued to employee benefit plans 1,312 1,893
Change in operating assets and liabilities:
Trade notes and accounts receivable (2,361) 5,645
Inventories (3,324) (3,021)
Prepaid expenses 2,028 627
Other assets 392 468
Trade accounts payable and accrued expenses (1,016) (3,914)
Federal and state income taxes payable/receivable 1,707 87
Deferred revenue 313 1,036
-------- --------
Net Cash and Cash Equivalents Provided by
Operating Activities 7,927 14,256
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of capital assets 2,671 709
Capital expenditures (10,483) (7,946)
Purchases of intangible assets (211) (273)
Acquisitions, net of cash acquired (2,000) (6,624)
-------- --------
Net Cash and Cash Equivalents Used in
Investing Activities (10,023) (14,134)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance (repayment) of notes payable (16,947) 2,689
Issuance of long-term debt 20,000 -
Payments on long-term debt (68) -
Dividends paid to stockholders (746) (715)
Stock options exercised 23 205
Stock repurchased (7) (1,765)
-------- --------
Net Cash and Cash Equivalents Provided by
Financing Activities 2,255 414
-------- --------
Net Increase in Cash and Cash Equivalents 159 536
Cash and Cash Equivalents at the Beginning of the Year 713 403
-------- --------
Cash and Cash Equivalents at the End of the Period $ 872 $ 939
======== ========
</TABLE>
<PAGE>
INCOMING ORDERS, NET SALES ($ MILLIONS) AND
NET INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
FY 1994 FY 1995
------------------------------------- -----------------
Apr. 30 July 31 Oct. 31 Jan. 31 Apr. 30 July 31
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
MEDICAL -- Orders $65.4 $75.6 $69.9 $ 85.0 $71.9 $76.2
Net Sales 69.4 71.9 69.6 75.0 73.7 77.2
AERO -- Orders 5.6 7.0 5.1 10.4 8.2 6.0
Net Sales 6.0 6.0 5.7 5.7 6.7 6.8
TOTAL -- Orders $71.0 $82.6 $75.0 $ 95.4 $80.1 $82.2
Net Sales 75.4 77.9 75.3 80.7 80.4 84.0
BACKLOG INCREASE (DECREASE) $(4.4) $ 4.7 $(0.3) $ 14.7 $(0.3) $(1.8)
- - ------------------------------------------------------------------------------------------------
NET INCOME (LOSS) BEFORE CUMULATIVE
EFFECT PER SHARE $ .15 $(.41) $ .06 $(2.46) $ .30 $ .34
CUMULATIVE EFFECT OF ACCOUNTING
CHANGES PER SHARE (.23) - - (.01) - -
----- ----- ----- ------ ----- -----
NET INCOME (LOSS) PER SHARE $(.08) $(.41) $ .06 $(2.47) $ .30 $ .34
===== ===== ===== ====== ===== =====
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-START> FEB-01-1994
<PERIOD-END> JUL-31-1994
<EXCHANGE-RATE> 1
<CASH> 757
<SECURITIES> 115
<RECEIVABLES> 74464
<ALLOWANCES> 2059
<INVENTORY> 50794
<CURRENT-ASSETS> 137889
<PP&E> 167996
<DEPRECIATION> 72360
<TOTAL-ASSETS> 265649
<CURRENT-LIABILITIES> 58716
<BONDS> 63336
<COMMON> 12497
0
0
<OTHER-SE> 103455
<TOTAL-LIABILITY-AND-EQUITY> 265649
<SALES> 164401
<TOTAL-REVENUES> 164401
<CGS> 94963
<TOTAL-COSTS> 153024
<OTHER-EXPENSES> (1181)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2600
<INCOME-PRETAX> 9958
<INCOME-TAX> 1990
<INCOME-CONTINUING> 7968
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7968
<EPS-PRIMARY> 0.64
<EPS-DILUTED> 0.64
</TABLE>
