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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED JANUARY 31, 1994
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
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)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 913-661-0444
SECURITIES REGISTERED PURSUANT SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common stock, $1.00 par value
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
The aggregate market value of Common Stock held by non-affiliates on April 26,
1994 was approximately $21.25. Such value was computed by reference to the
reported last sales price of such stock on April 26, 1994.
There were 12,407,027 shares of the Puritan-Bennett Corporation Common Stock,
$1.00 par value, outstanding on April 26, 1994.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the annual stockholders meeting to be held
June 10, 1994 are incorporated by reference in Part III.
Portions of the Annual Report to Stockholders for Fiscal Year Ending January
31, 1994 are incorporated by reference in Parts I and II.
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PART I
ITEM 1. BUSINESS
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GENERAL
Puritan-Bennett Corporation (the "Company") was reincorporated in Delaware in
August, 1968. The Company is the successor to a business founded in 1913 that
was incorporated in the State of Missouri and was a pioneer in the use of oxygen
as a medicinal agent.
The Company is primarily engaged in the development, manufacture, and sale of
products related to respiration. Such products are used in a wide variety of
health care settings and on aircraft. The Company's intentions are global in
scope; and it aspires to be the preeminent respiratory company in the world.
Since 1982, the Company has pursued a strategy that focuses on expanding its
leading position within the hospital and aviation markets, and on continuing to
build a major presence in the home care market. To penetrate these differing
markets more effectively, the Company has developed sales forces and other
channels of distribution to address the home care, hospital, and physician
markets. Aggressive efforts have been made to expand international sales.
The Company is organized in three main business areas. The Bennett Group
mainly covers the hospital market. The Puritan Group mainly covers home
respiratory care, medical gases and physician markets. Aero Systems covers
primarily general and commercial aviation.
PRODUCTS AND RELATED MARKETS
BENNETT GROUP
The Company's strategy in the hospital market has been to expand its
historical leadership position by designing products that provide new modes of
treatment and respond to the need of hospitals to enhance labor productivity
while maintaining high standards of quality and reliability. The ventilator
sold to the hospital market is a microprocessor controlled ventilator. This
ventilator is designed to ease the work of patient breathing and lessen patient
discomfort. It automatically performs pulmonary function diagnostic tests and
reduces therapists' time spent attending to patients and preparing the
ventilators for patient use. The Company believes that respiratory care
activities represent an important labor cost component of a hospital's
operations and that its strategy is consistent with hospital cost containment
objectives. The Company is also designing its products as systems to allow for
future enhancements through integration with existing or planned Company
products. Significant products within this Group include:
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7200(R) SERIES VENTILATORY SYSTEM: The primary respiratory care products
purchased by hospitals are ventilators (sometimes called respirators) used to
assist or manage respiration in a variety of acute care settings. The 7200
Series ventilator is also used in settings, where chronically-ventilator
dependent patients require a more sophisticated ventilator to improve the
chances of weaning. This is the Company's most advanced ventilator and remains
the standard of the industry. It was designed to allow for future hardware and
software enhancements the Company continues to develop. Current options include
a digital communications interface, a printer, pressure support software, flow-
by software, respiratory lung mechanics software, an oxygen monitor, a pulse
oximetry option, a flat panel display and two significant software options
namely an enhanced flow-by and a graphic wave forms option.
For the year, incoming unit orders for the 7200 Series ventilators declined 8%
worldwide - down 18% in the U.S., essentially unchanged in Europe, and up 18% in
the rest of the world. This portion of the Company's business was affected by
developments affecting hospital capital spending such as health care reform
uncertainty in the U.S. and recessionary economic conditions in Europe.
Moreover, a tragic fire in September 1993 at Maimonides Medical Center in
Brooklyn, New York called into question the safety of the 7200 Series
ventilators and certain of its accessories, which were absolved four months
later by the findings of an extensive, independent investigation. All of the
worldwide order decline occurred in the first quarter; during the remainder of
the year unit orders slightly exceeded prior year levels. The remainder of the
year was spent replenishing backlog depleted during the first quarter, so the
company is entering FY 1995 with a unit backlog 17% larger than a year ago.
The Company continues to pursue an active research and development program
related to critical care ventilation. There are further product enhancements
now available in most international countries, but are awaiting FDA clearance
for sale in the U.S. It is not possible to predict when such clearance will be
received. Increasingly, the Company expects to introduce new and improved
products outside the U.S. before it will be possible to introduce them to the
U.S. market.
CLINIVISION(R): This personal computer-based patient care and respiratory
therapy department management system integrates the patient data captured and
processed by the 7200 Series ventilator, as well as other clinical data, into a
management information system that can be used by respiratory therapy department
directors and therapists to manage and monitor patient care and staffing
requirements. Once interfaced to the host hospital information system,
CliniVision electronically handles admitting, discharge, transfer, and order
entry data, as well as transmitting billing and results reporting. During
fiscal year 1994, the Company enhanced CliniVision significantly making it an
even more powerful productivity tool and widening the feature/benefit gap
between CliniVision and competitive alternatives. Some enhancements introduced
include a PhoneLink module that provides two-way access to the CliniVision
database from an unlimited number of remote locations over existing phone lines.
CliniVision To Go, which consists of a CliniVision PhoneLink Hand Held Computer,
a battery-powered modem and printer and a PB 100 Renaissance(R) Spirometer all
in a portable case, was also introduced. The Company released a RadioLink
module that provides two-way, near real-time access to the CliniVision database
from anywhere in the hospital that is within radio
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communication range. Finally, the Company released several other modules -
TaskView, LaserChart and Standard Management Reports - that make it possible to
monitor the status of data transmitted from all hand held computers in use and
easier to convert large volumes of clinical data into useful information. During
fiscal year 1994, orders, including multi-year system support agreements,
increased approximately 7% and revenues increased 3% from 1993 levels. The
system has proven itself in 94 customer sites at the end of fiscal year 1994, to
be a comprehensive solution leading to substantial productivity improvement and
reductions in lost billings. With potential reform of the U.S. health care
system imminent, such benefits could become even more valuable as hospitals are
confronted with the task of caring for more patients with relatively fewer
resources. The Company believes that information systems such as CliniVision
will play a key role in managing costs in an intensive care environment.
PB 3300(TM) SYSTEM: The FOxS division of Puritan-Bennett Corporation has
developed this intra-arterial blood gas monitoring system. The current primary
method of blood gas testing involves the extraction of a blood sample from the
patient for analysis in a central laboratory facility. In contrast, the PB3300
System measures and displays arterial blood gas and pH value on a real time
basis at the patient's bedside without the removal of blood for samples. The
system consists of a microprocessor-controlled monitor and calibration unit and
a disposable, fluorescent-based fiber optic sensor, which is inserted in the
patient's bloodstream using conventional 20 gauge catheters available from two
different manufactures.
A January 1994 consent decree affected the Company's FOxS intra-arterial blood
gas monitoring operation requiring a cessation of shipments to customers until
FDA is satisfied it is in compliance with Good Manufacturing Practice (GMP)
regulations. As a result, the Company has substantially reduced the FOxS
operation, is addressing its GMP issues and is offering it for sale. The
Company believes that the proprietary continuous blood gas monitoring system
represents a valuable and important new technology and that the long-term
commercial opportunity for it remains large. However, the Company has also
concluded that the opportunity is better suited to a company with greater
financial resources and will attempt to find a buyer or strategic partner by
midyear.
PURITAN GROUP
The Company believes that both the domestic and international markets for non-
hospital respiratory products are experiencing growth for a number of reasons
including (i) growth in the population of individuals suffering from asthma,
lung cancer and severe, chronic obstructive pulmonary diseases such as
bronchitis and emphysema; (ii) technological innovations making care for
respiratory patients at home possible; (iii) growing clinical evidence
supporting the efficacy of various types of home respiratory care; and (iv)
government cost containment pressures encouraging a shift in the delivery of
care from the hospital to lower cost alternate sites, particularly the home. As
a result, patients suffering from a variety of severe, chronic respiratory
conditions as well as patients requiring short-term respiratory therapy due to
earlier hospital discharge are increasingly being cared for at home.
Significant product categories for this Group are:
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OXYGEN CONCENTRATORS: Oxygen concentrators extract oxygen from room air and
generally provide the least expensive supply of oxygen for patients who require
a continuous supply, are not ambulatory, and whose prescribed flow rates are
within five liters per minute.
The Company formerly offered the Companion(R) 492 Oxygen Concentrator that the
Company believes has proved to be an exceptionally durable and reliable product.
In late 1989, the Company introduced a new oxygen concentrator product family
incorporating and improving upon the design and technology of the Companion 492.
This new product family includes an optional OCI(TM) indicator (Oxygen
Concentration Indicator) that continuously monitors the oxygen percentage of the
output for the 492a and 590 (4 and 5 liter per minute capacity units) oxygen
concentrators and alerts the patient in the event of a performance degradation
automatically shutting the unit down in the event of a significant
deterioration, in which case the patient utilizes a back-up oxygen cylinder.
Market acceptance of the OCI indicator significantly exceeded the Company's
expectations; more than two-thirds of the units ordered in the U.S. now include
the OCI indicator option. Oxygen concentration monitoring became a voluntary
standard last year in the U.S. Such on-board monitoring helps home care
providers reduce the frequency of trips to patient's homes to check on the
status of the concentrator. During 1991, this product family was introduced
into international markets.
Oxygen concentrator revenues grew only modestly on a worldwide basis last
year; however, they grew 30% in the U.S., where the Company continues to gain
market share in a growing market. The decline internationally occurred entirely
in Europe where prior year volume included a fleet replacement by a single large
customer. The Company expects international growth to resume in fiscal year
1995.
LIQUID OXYGEN SYSTEMS: Liquid oxygen systems store oxygen at a very low
temperature in liquid form, which is 860 times more concentrated than gaseous
oxygen under high pressure. The stationary unit can be easily refilled at home
and can be used to fill a portable device that permits greatly enhanced patient
mobility.
The Companion 550, the new ambulatory unit, introduced during fiscal year
1993, met the Company's expectations during fiscal year 1994. This unit
utilizes a proprietary, pneumatic oxygen-conserving device that requires no
batteries and is significantly smaller and lighter than its predecessor, the
Companion 1000, while providing essentially the same duration of use. During
fiscal year 1994, the Company began introducing this new unit internationally as
the necessary technical and governmental approvals were obtained.
In fiscal year 1994, liquid oxygen systems grew more than 25% from prior year
levels. In the U.S., growth exceeded 35% for both liquid oxygen systems and
liquid oxygen. Such growth reflects some continuing market share gain; more
importantly, it reflects the growing recognition of the clinically important
role of ambulation as part of effective pulmonary rehabilitation and the
essential role of supplemental oxygen in making such activity possible.
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Internationally, liquid oxygen system demand grew only moderately as the
growth the Company experienced in Europe was partially offset by a reduction in
Canada caused by health care reimbursement changes there. On the whole, the
Company expects international markets for liquid oxygen systems to continue to
open, develop, and grow for the same clinical, economic and quality of life
reasons that apply to the U.S.
During fiscal year 1995, the Company plans to establish liquid oxygen system
fabrication capability in the Republic of Ireland facility, where assembly and
test capability already exists. Doing so will increase the Company's total
fabrication capacity to accommodate additional growth, enable the Company to
serve customers in a more timely manner from both the Indianapolis and Ireland
facilities and save freight and duty costs.
HIGH PRESSURE OXYGEN SYSTEMS: High pressure oxygen systems supply oxygen from
high pressure cylinders that require periodic exchange for refilling. These
were the first commercially viable oxygen supplementation systems for the home
health care market but have been increasingly replaced in the home by liquid
oxygen systems and oxygen concentrators. These systems are used in the home
primarily on a standby basis and for patients who need high flow rates.
Portable devices are another application for high pressure oxygen systems.
PORTABLE VENTILATORS: Portable ventilators are used by patients requiring
breathing assistance as a result of neuromuscular disease, chronic obstructive
pulmonary disease or spinal cord injury. These ventilators are compact in size
and operate from either AC power or 12 VDC battery power and incorporate an
internal battery for short-term emergency power outages. Portable ventilators
are used at the patient's bed side, mounted to wheelchairs or they are used in
automobiles and airplanes. Portable ventilators offer a reduced cost
alternative to hospital care for patients that can be discharged to their home
or nursing home. The Company designs, manufactures and sells the Companion 2801
Portable Ventilator that is microprocessor-based. The Company introduced the
Companion 2801, which replaced the Companion 2800, in the spring of 1990. The
Companion 2801 offers improved performance capabilities, ease of use,
reliability and serviceability. In late 1990, a variation of our Airway Device
and Management (ADAM) circuit was introduced. It makes ventilation possible for
those patients who can be supported on a non-invasive basis.
The January 1994 consent decree also affected the Company's portable
ventilator facility in Boulder, Colorado requiring a cessation of shipments from
this location to customers in the United States until FDA is satisfied it is in
compliance with Good Manufacturing Practice (GMP) regulations. As a result, the
Company is closing the Boulder facility and transferring the manufacture of the
portable ventilators made there to its ISO (International Standards
Organization) 9002-certified facility in the Republic of Ireland from which
customers outside the U.S. continue to be served.
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MANUAL RESUSCITATORS: Portable, manually-powered, reusable resuscitators
designed for use in emergency situations to provide lung ventilation to those
individuals with impaired respiratory function have been marketed by the Company
for some time with the versatile PMR(R) 2 being marketed since 1980. In
October, 1989 the Company introduced its Disposable Manual Resuscitator (DMR) as
a cost effective way to provide infection control on patients who require manual
resuscitation. During 1991, the DMR achieved a significant share of the highly
competitive hospital market which it continues to maintain. Sales during fiscal
year 1994 increased over 1993 by 5.8%. With a focus on international
development, increases in sales during fiscal year 1995 are anticipated.
SLEEP APNEA SYSTEM: Adult sleep apnea, temporary cessation of breathing while
asleep, affects millions of people in the U.S. and can become a virtually
debilitating ailment. While the Company is a relatively recent entrant into
this market, it began to realize meaningful results in late 1989 with the
introduction of a proprietary, patented patient circuit - the Airway Delivery
and Management System (ADAM) - used with the Company's Nasal Continuous Positive
Airway Pressure (CPAP) System. A significant new product was developed in this
field and introduced in the third quarter of 1991, the Companion 318 Nasal CPAP
System. The Companion 318 is smaller than competitive products and offers
additional diagnostic tools for sleep lab clinicians. In addition, its many
features are aimed at providing the highest level of patient comfort. During
the second quarter of fiscal year 1993, the Company entered into an agreement
with Bio-logic Systems Corp. granting the Company distribution rights in the
U.S. to Bio-Logic's Sleepscan(R) computerized diagnostic system product line
used by hospital sleep laboratories and home care providers. During the second
quarter of fiscal year 1994 the Company introduced the Companion(R) 320 I/E Bi-
level(TM) Respiratory System for patients requiring higher respiratory pressures
to overcome airway obstruction.
The Company's worldwide sleep product revenues grew over 75% in fiscal year
1994. More than 85% of these revenues were from the U.S. market, where growth
was over 90%.
In late January 1994, the Company acquired SEFAM S.A. (Nancy, France), a
French manufacturer of sleep diagnostic and therapeutic products and the
European market leader in this area. The Company believes acquiring SEFAM will
enable the Company to strengthen its other home care product positions in France
and elsewhere in Europe. The home care sales activities of Puritan-Bennett,
SEFAM and Lit Dupont (a much smaller company, near Lyon, France, that
manufactures wheelchair products and is 80% owned by SEFAM) are being combined;
the R&D programs of Puritan-Bennett and SEFAM will be closely coordinated.
MEDICAL GASES: The production and distribution of medical gases represents
the Company's oldest product line. The Company is the largest producer of
nitrous oxide in North America. This gas is used in anesthesia and analgesia
and is sold by the Company under its own label and through other distributors.
The Company also distributes other medical gases, including oxygen, Sodalime
(used to absorb CO2 during anesthesia) and special gas mixtures that are used
for calibration, testing, and other purposes. Medical gas and related
distribution equipment businesses experienced another good
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year.
During fiscal year 1994, Puritan-Bennett sold its home care services business
in South Florida. Since the inception of the Company's home care strategy a
decade ago, the focus has been on home respiratory products, not retail service.
During first quarter of fiscal year 1994, the Company's physician office
business unit was transferred to the Puritan Group. The underlying reason for
this shift was product distribution channels more closely match the home care
products distribution channel of home care providers/dealers than the Bennett
Group's direct hospital distribution channel. With this closer distribution
match, the Company believes some economic selling efficiency can be gained to
reduce the selling cost per order dollar over time. The significant product
within this unit is:
PB100 SPIROMETER: This small, hand held spirometer offers true portability.
The patient data memory card and the rechargeable batteries allow testing of
multiple patients at off-site locations. The base station is used for
downloading patient information to a choice of printers along with the option of
sending patient data to a computer. Two disposable pneumotachs eliminate
cleaning and minimize the risk of cross-infection for both patients and staff.
Marketed under the name of Renaissance(R) Spirometry System, orders and
shipments began for this product in December 1991 with initial market acceptance
very strong. The Company expects continued volume increases for fiscal year
1995. The spirometry product line is manufactured in the Company's facility in
the Republic of Ireland.
AERO SYSTEMS
The Company is the primary supplier of chemical oxygen generators and
passenger air valves for the Boeing 737, 757, 767 and 777 and for all current
models of the European Airbus; oxygen distribution manifolds and air valves are
supplied for the Boeing 747 and 777; passenger masks for the Boeing 777; oxygen
systems for the Dutch Fokker 100, the German Dornier Do328, the British
Aerospace BAs 146 and Canadian RJ. The Company also supplies passenger service
units for the British Aerospace Jetstream 41 and the Swedish SAAB 2000. During
fiscal 1994 the Company received a contract to supply the oxygen system for the
Dutch Fokker 70. Market response to the Sweep-On(R) 2000, a new crew mask with
inflatable harness, has been very positive in the equipment replacement market
and several aircraft manufacturers have selected the mask as standard equipment
for various models of aircraft. The Company also supplies oxygen equipment and
passenger service units for numerous aircraft in the commuter and business
aircraft market.
During fiscal 1994 commercial interest in the Airborne Closed Circuit
Television (ACCTV(TM)) increased significantly with promising expectations. The
product provides remote viewing of internal and external areas of an aircraft
both in visual and infrared light for aircraft safety purposes, as well as
providing landscape camera views for passenger entertainment. ACCTV developed
and delivered landing gear monitoring, aircraft security camera systems and
landscape viewing systems for the Boeing 747-400 aircraft during fiscal 1994.
Orders for the same type systems for use aboard Boeing 767 and
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Airbus A340 aircraft were awarded during fiscal 1994 with installation taking
place in fiscal 1995. ACCTV was awarded a $2.9 million contract for the drogue-
chute deployment monitoring system on the McDonnell Douglas C-17A with first
deliveries starting the first quarter of fiscal 1995. A number of airlines are
actively evaluating the product for use on their aircraft. The Company expects a
favorable response to these evaluations during fiscal 1995.
To improve the overall cost structure and provide better market support, a
California based oxygen equipment manufacturing facility was closed and the
product lines transferred to other facilities.
Continued softness in the aviation industry resulted in a 7% decline in
revenues compared to fiscal 1993. For the same period the orders increased by
16%, the increase being primarily driven by orders for the ACCTV product line.
Operating profits declined primarily because of cost associated with a product
recall, the closing of the El Segundo facility and start-up costs at ACCTV. It
is the Company's belief that it is positioned favorably to capitalize on new
opportunities and the recovery in the aviation industry when it occurs.
MARKETING AND SALES
The Company's U.S. hospital sales organization consists of approximately 125
people who are responsible for marketing to approximately 5000 acute care
hospitals in the United States. The Company has also established direct
hospital sales organizations in Canada, England and Wales, Italy, France, and
Germany.
The Company also employs a direct sales force of over 40 people who sell to
home care providers throughout the United States. Some of these sales
representatives also are involved in the sale of medical gases and gas
distribution/administration products. Additional sales personnel market medical
gas and gas distribution/administration products only.
The Company has targeted the international market as an important growth
opportunity. During fiscal year ending January 1994, international business
accounted for about 28% of the Company's total revenues. The Company conducts
its sales in foreign countries through its headquarters and international sales
offices located in California, Canada, Great Britain, France, Hong Kong,
Malaysia, Argentina, Australia, Italy, Finland, Germany, Taiwan and Puerto Rico.
Expansion efforts have included the establishment of direct sales organizations
in Great Britain, Canada, France, Italy, and Germany. The home care delivery
systems of many foreign countries are far less developed than in the U.S. The
Company expects foreign countries to expand their home care delivery systems, in
part because home care is more cost effective than hospital care.
In an effort to strengthen its development of its international business, the
Company is positioning itself for further growth. Channels of distribution are
presently being strengthened for significant long-term growth opportunities in
Mexico. The Manufacturing operation the Company maintains in Tijuana continues
to grow. In addition, the Company entered into an agreement with Hoyer
Medizintechnik, its long-standing hospital products distributor in Germany, to
establish a venture to sell, service and support the Company's hospital products
within the significant German market. This new operation,
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Puritan-Bennett Hoyer GmbH, commenced commercial operations in April, 1993. In
addition, the January 1994 acquisition of SEFAM S.A. and its 80% owned Lit
Dupont subsidiary expands the Company's international business.
Foreign and export sales for years ending January 31, 1994, January 31, 1993
and December 31, 1991 totaled approximately $86,702,000, $94,185,000, and
$73,607,000, respectively. These sales were not concentrated in a specific
geographic area. (The information contained in Note 12 to the consolidated
financial statements on pages 38 and 39 of the Puritan-Bennett Annual Report to
Stockholders for fiscal year ending January 31, 1994 is incorporated herein by
reference.)
A material part of the business of the Company is not dependent upon a single
customer or a very few customers (no single customer accounts for 10% or more of
consolidated sales), the loss of any one of which would have a materially
adverse effect on the Company.
The Company's operations constitute one significant, reportable industry
segment consisting predominantly of the design, manufacture, and distribution of
specialized products related to respiration.
Sales by the Company of classes of similar products which, for the last three
fiscal years, contributed 10% or more of net sales are as follows:
Bennett products accounted for approximately 35% for fiscal year ending
January 1994, 39% for fiscal year ending January 31, 1993 and 39.1% for the year
ending December 31, 1991 of net sales.
Medical gas products accounted for approximately 12.6% for fiscal year ending
January 31, 1994, 12% for fiscal year ending January 31, 1993 and 12.9% for the
year ending December 31, 1991 of net sales.
Aero Systems products accounted for approximately 7.6% for fiscal year ending
January 31, 1994; 8.4% for fiscal year ending January 31, 1993 and 10.5% for the
year ending December 31, 1991 of net sales.
Home care products accounted for approximately 35.5% for fiscal year ending
January 31, 1994, 30.9% for fiscal year ending January 31, 1993 and 26.6% for
the year ending December 31 of net sales.
Order back-log as of April 1994 was approximately $73,152,000 compared to
$60,623,000 for April 1993. All back-log at January 31, 1994 is expected to be
shipped during the current fiscal year ended January 31, 1995, with the
exception of approximately $346,000 within the aviation product line.
The Company is not subject to material seasonal fluctuations in business nor
is any portion of the business subject to renegotiation of profits or
termination of contracts at the election of the U.S. Government.
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RAW MATERIALS
Raw materials and supplies are purchased by the Company from such diverse
industry sources as chemicals, machine components, plastic resins, electronics
and private label products and a variety of original equipment manufacturers and
suppliers. These materials have been readily available throughout the past year
and the Company has no reason to believe that it cannot continue to obtain such
materials as needed. While the Company typically makes purchases pursuant to
multi-year contracts, it does utilize single source suppliers for a limited
number of specific component parts for its products. In addition, the Company
itself produces components made from a wide variety of raw materials that are
generally available in quantity from alternate sources of supply.
PATENTS AND TRADEMARKS
While the Company has several patents, patent applications and trademarks
relating to its products, it does not consider its business to be dependent upon
the protection of any of these or any group thereof, or that its operations
would be materially affected by the expiration or loss of any of them. In the
Company's opinion, its design, manufacturing and marketing skills, experience,
and reputation are more responsible for its industry position than its patents
or licenses.
COMPETITION
The Company competes actively with numerous other companies that manufacture
and sell products in the same markets, some of which are divisions of
substantially larger companies in terms of their total sales (taking into
account sales of non-competitive products) and assets than the Company. The
Company believes that it is one of the leaders in the market for products
related to respiration. The principal methods of competition in the Company's
main business areas are the products' contribution and support to patient care,
as well as the quality of the product and service support to the customer.
RESEARCH AND DEVELOPMENT
The Company expended approximately $24,887,000 in the fiscal year ending
January 31, 1994, $25,849,000 in the fiscal year ending January 31, 1993 and
$24,137,000 in the year ending December 31, 1991 on research and development
activities. These amounts have been utilized to improve existing products,
expand the applications of existing products, and develop new products. All of
this activity is Company-sponsored.
GOVERNMENT REGULATION
The manufacture and sale of the Company's principal products are subject to
regulation by the U.S. Food and Drug Administration (FDA). Under the Federal
Food, Drug, and Cosmetic Act, FDA regulates a wide spectrum of device
manufacturers' operations, including manufacturing processes, and the
introduction of new devices and improvements to existing devices. FDA
administers a system under which device manufacturers, distributors and users
are required to submit reports of adverse device experience. The Company's
facilities and operations are subject to unscheduled FDA
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inspections.
FDA can ban certain medical devices, detain or seize "adulterated or
misbranded" medical devices and order repair, replacement or refund and require
notification of health professionals and others, with regard to medical devices
that present unreasonable risks of substantial harm to the public health. FDA
also can order cessation of shipment and recall of a medical device by the
manufacturer if there is serious adverse health consequences or death.
FDA can impose civil money penalties for certain violations of the law
relating to medical devices, and can proceed through court action to enjoin and
restrain certain violations of the Federal Food, Drug, and Cosmetic Act
pertaining to medical devices or initiate criminal prosecutions for such
violations without proving criminal intent. If FDA determines that a
manufacturer is in substantial noncompliance with FDA's good manufacturing
practices regulation, the Agency can withhold product approvals (premarket
approval applications and supplements and Section 510(k) notifications) with
respect to the manufacturer's devices, and can notify the Veterans
Administration and other U.S. government agencies of such noncompliance. Such
notification may lead to a cessation of purchases of the manufacturer's devices
by the notified agencies. FDA has proposed new regulations governing good
manufacturing practices, which if adopted in their proposed form would further
increase the costs of regulatory compliance.
Increasingly stringent regulation of medical device manufacturers by FDA in
recent years is reflected in a significant reduction in the number of new
products and improvements to existing products that the Agency has cleared for
commercial release, corresponding increases in approval times, and in recent
enforcement actions by the Agency. FDA has given high priority to surveillance
and enforcement activities related to device manufacturers, especially
manufacturers of critical care devices such as Puritan-Bennett. FDA may take
stringent regulatory action upon finding deficiencies during inspections, or
upon learning of product performance problems. Lengthened product approval
times, intensified regulatory enforcement and the expense of compliance with FDA
requirements have increased substantially the risks associated with
manufacturing and marketing medical devices in the United States.
In January, 1994 the Company entered into a consent decree with FDA under
which the Company agrees to maintain systems and procedures complying with FDA
regulations in all of its device manufacturing facilities. Under the decree,
domestic shipments of portable ventilator products and intra-arterial blood gas
(IABG) monitoring systems are suspended until FDA is satisfied with the
Company's manufacturing practices for such products. Under certain
circumstances, the consent decree permits export of such products.
The Company has decided to discontinue U.S. portable ventilator manufacturing
and is shifting production to Ireland to serve the international market. The
Company continues working to resolve the issues that led to the suspension of
IABG monitoring systems production. The Company, however, cannot predict when
FDA will give approval for resumption of shipments. The Company currently is
seeking a potential purchaser or strategic partner for the
12
<PAGE>
IABG monitoring business.
As the Company increases its emphasis on export sales and overseas
manufacturing of its products, device laws and regulations of other countries
will have an increasing impact on the Company's business. Such laws and
regulations vary greatly from country to country, and include comprehensive
premarket approval requirements in some countries. Throughout the world, the
trend is toward increasing device regulation.
OTHER INFORMATION
As of April 26, 1994 the Company employed approximately 2700 employees
worldwide.
There has been no material effect on the capital expenditures, earnings, and
competitive position of the Company because of compliance with federal, state,
and local provisions regulating the discharge of materials into the environment
or otherwise relating to the protection of the environment.
The Company owns 56% of Medicomp, Inc., a Florida corporation that develops,
manufactures, and distributes ambulatory cardiac monitors. These solid state
devices perform real-time analysis of 24-hours of cardiac data captured through
dual channel electrodes. Real-time analysis is done by a microprocessor as data
are recorded, which allows physicians to review results within minutes.
On October 26, 1988, the Company placed $30.0 million in Senior Notes due
October 1998 bearing 9.85% per annum with an insurance company. This agreement
contains certain working capital requirements. The information contained in
Note 8 to the consolidated financial statements on pages 36 and 37 of the
Puritan-Bennett Annual Report to Stockholders for fiscal year ending January 31,
1994 is incorporated by reference.
On December 21, 1990 the Company placed $10.0 million in Senior Promissory
Notes due December 31, 1997 bearing 9.02% per annum with an insurance company.
This Agreement contains certain working capital requirements. The information
contained in Note 8 to the consolidated financial statements on pages 36 and 37
of the Puritan-Bennett Annual Report to Stockholders for fiscal year ending
January 31, 1994 is incorporated herein by reference.
On December 7, 1990 the Company executed a Loan Agreement with Bank of Ireland
borrowing the sum of $4.5 million bearing variable interest rates through
December, 1995, with the interest payable annually through December, 1995, and
principal is payable in full in December, 1995. This Agreement contains certain
working capital requirements. The information contained in Note 8 to the
consolidated financial statements on pages 36 and 37 of the Puritan-Bennett
Annual Report to Stockholders for fiscal year ending January 31, 1994 is
incorporated herein by reference.
In December, 1992 the Company placed $15.0 million in Senior Notes due
December 31, 1999 bearing 6.64% per annum with an insurance company. This
Agreement contains certain working capital requirements. The information
contained in Note 8 to the consolidated financial statements on
13
<PAGE>
pages 36 and 37 of the Puritan-Bennett Annual Report to Stockholders for fiscal
year ending January 31, 1994 is incorporated herein by reference.
On August 15, 1989 the Company acquired for $9.1 million in cash the 40%
interest in FOxS Labs, Inc., located in Carlsbad, California that the Company
did not previously own. FOxS Labs, Inc. was created in 1986 to develop new,
patented in-dwelling arterial blood gas technology for real-time, continuous
monitoring of critically ill patients.
In 1990, the Company established its first European manufacturing operation in
Galway, Republic of Ireland. The Company now maintains a manufacturing presence
within the European Community in a financially advantageous location. Its size
and scope is helping to serve the Company's European customers better,
preserving full access to these customers as the "1992 process" continues to
unfold in the European Community and improving overall financial performance.
In May 1992, the Company purchased an approximate 82,500 square foot facility in
Galway, Republic of Ireland. The Company had rented approximately half of the
facility at the time of purchase. After taking into consideration previously
announced capital grants from the Irish Development Authority, the net cost was
approximately $2.7 million.
In April 1993, the Company acquired a German distributor (Hoyer
Medizintechnik) for $10.5 million. The information contained in Note 16 to the
consolidated financial statements on page 40 of the Puritan-Bennett Annual
Report to Stockholders for fiscal year ending January 31, 1994 is incorporated
herein by reference.
In late January 1994, the Company acquired a French supplier of diagnostic and
therapeutic sleep products (SEFAM S.A.) for a total of $21.6 million of which
$12.9 million was paid in cash with the remainder paid through the issuance of
426,929 restricted shares of the Company's common stock. The information
contained in Note 16 to the consolidated financial statements on page 40 of the
Puritan-Bennett Annual Report to Stockholders for fiscal year ending January 31,
1994 is incorporated herein by reference. The French Ministry of Finance has
requested an advisory opinion from the French Fair Trade Commission as to
whether the Company's acquisition of SEFAM S.A. might adversely affect
competition with respect to certain products and whether any restrictions should
be introduced.
ITEM 2. PROPERTIES
- - -------------------
The Company's executive offices, occupying approximately 31,618 square feet,
are located at Building No. 40, 9401 Indian Creek Parkway, Overland Park,
Kansas, and are leased by the Company. Manufacturing and research facilities
are located in Lenexa, Kansas; Fountain Valley and Carlsbad, California;
Wilmington, Massachusetts; Indianapolis, Indiana; St. Louis, Missouri;
Melbourne, Florida; Nancy and Lyon, France; Galway, Republic of Ireland and
Tijuana, Mexico. The Company considers that its properties are generally in
good condition, are well maintained and are generally suitable and adequate to
carry on the Company's business.
The Lenexa plant is located on 30 acres of land and contains approximately
116,000 square feet, the Fountain Valley plant contains approximately 24,000
square feet, the Carlsbad facility contains approximately 225,000 square feet,
14
<PAGE>
the Ireland facility contains approximately 82,500 square feet, and the Nancy,
France facility contains approximately 29,700 square feet. All of these
Company-owned plant locations contain both office and manufacturing space.
The FOxS Labs complex contains approximately 21,600 square feet, the
Wilmington plant contains approximately 16,200 square feet, the Indianapolis
plant contains approximately 68,400 square feet, the St. Louis plant contains
approximately 40,000 square feet, the Melbourne plant contains approximately
21,000 square feet, the Tijuana, Mexico facility contains approximately 22,000
square feet and the Lyon, France facility contains approximately 28,600 square
feet. All of these Company-leased facilities contain both manufacturing and
office space with allocations for warehouse facilities. These leases will
expire or be extended at varying dates between the present and June, 2011.
The Company produces nitrous oxide at facilities located in Galena, Kansas;
Maitland, Ontario; Pensacola, Florida and Richmond, California. Those
facilities, other than the one Company-owned location in California, are leased
from and located adjacent to its supplier of ammonium nitrate.
The Company also maintains 37 sales and/or service offices and warehouse
facilities worldwide of which 28 are leased and 9 are owned. The Company
considers that all facilities whether owned or leased are well maintained and in
good operating condition.
The Company owns approximately 27 acres of undeveloped land located in Rancho
Bernardo, California. As the Company's need for the Rancho Bernardo property
has significantly diminished, the Company continues to actively market this
asset.
In fourth quarter fiscal year 1993, the Company entered into an agreement
whereby it will have constructed an approximately 72,000 square foot, build-to-
suit facility in the St. Louis area for its oxygen concentrator business. The
facility, which will be leased initially with an option to purchase, replaces a
smaller leased facility in the same general area and will be ready for occupancy
in March 1994.
The Company previously announced it had started planning for a facility
suitable for its longer-term requirements in the Kansas City area. The Company
is moving forward on obtaining the facility site funded by selling, as the
market conditions permit, real estate and other assets that are no longer part
of the Company's long-term plans such as the unused land in Lenexa, Kansas and
Ranch Bernardo, California and the vacant El Segundo, California facility.
However, the remainder of the project has been indefinitely postponed.
ITEM 3. LEGAL PROCEEDINGS
- - ---------------------------
Neither the Company nor any of its subsidiaries is involved in any material
pending litigation other than ordinary routine proceedings incident to their
business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- - ------------------------------------------------------------
There were no matters submitted to security holders during the fourth quarter
ending January 31, 1994.
15
<PAGE>
EXECUTIVE OFFICERS OF THE COMPANY
---------------------------------
<TABLE>
<CAPTION>
Year
First
Name Office Age Elected
---- ------ --- -------
<S> <C> <C> <C>
Burton A. Dole, Jr. Chairman of the Board, President and
Chief Executive Officer 56 1980
John H. Morrow Executive Vice President and Chief
Operating Officer 49 1979
Robert L. Doyle Sr. Vice President, Marketing 51 1988
Thomas E. Jones Sr. Vice President, General Manager
Puritan Group 50 1989
David P. Niles Vice President, Quality and
Regulatory Affairs 52 1991
Alexander R. Rankin Vice President, General Manager
Bennett Group 58 1993
Lee A. Robbins Vice President, Chief Financial Officer and
Controller 52 1985
Derl S. Treff Treasurer and Assistant Secretary 51 1985
Daniel C. Weary Secretary and Director 66 1968
</TABLE>
The term of office of all executive officers is one year and extends until the
next Annual Meeting of the Board of Directors, generally at the time of the
Annual Meeting of Stockholders.
The business experience of executive officers of the Company during the past
five years is as follows:
Burton A. Dole, Jr. President, Chief Executive
Officer and Director of Company since 1980.
Subsequently elected Chairman of the Board in 1986.
John H. Morrow Vice President of Company since 1979. Executive Vice
President and Chief Operating Officer since 1989.
Robert L. Doyle Vice President of Company since 1988. Sr. Vice
President since 1988.
Thomas E. Jones General Manager of Lenexa Division through May, 1989.
Elected a Vice President in May, 1989. Currently
General Manager of Puritan Group. Sr. Vice President
since April, 1993.
16
<PAGE>
Executive Officers of the Registrant (continued)
- - ------------------------------------------------
David P. Niles Director, Corporate Product Assurance for Medtronic,
Inc. through January, 1989. General Manager Bennett
Division since February, 1989. As of July, 1990, General
Manager of Bennett Group. Elected a Vice President in
February, 1991. As of February, 1993, Manager Quality
and Regulatory Affairs.
Alexander R. Rankin Group Manufacturing Manager and General Manager of
Massachusetts Medical Manufacturing Operation for
Hewlett-Packard Company Medical Products Group through
March, 1993. Elected Vice President, Bennett Group
Manager as of April, 1993.
Lee A. Robbins Corporate Controller of Company since December, 1985.
As of July, 1986, Chief Financial Officer. Elected a
Vice President in May, 1990.
Derl S. Treff Treasurer and Assistant Secretary of the Company since
July 1985.
Daniel C. Weary Secretary of Company since October, 1968. Also partner
in the law firm of Blackwell Sanders Matheny Weary and
Lombardi of Kansas City, Missouri.
17
<PAGE>
Part II
-------
Item 5. Market for Company's Common Equity and Related Stockholder Matters.
- - ------- -------------------------------------------------------------------
The information in Note 9 to the consolidated financial statements on pages 37
and 38 and information on pages 27 and 53 of the Puritan-Bennett Annual Report
to Stockholders for fiscal year ending January 31, 1994 is incorporated herein
by reference. During FY 1994 and FY 1993, the Company declared dividends of
$.12 per share.
Item 6. Selected Financial Data.
- - ------- ------------------------
The information in the Ten-Year Summary on pages 22 and 23 of the Puritan-
Bennett Annual Report to Stockholders for fiscal year ending January 31, 1994 is
incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
- - ------- ---------------------------------------------------------------
Results of Operations.
----------------------
The information in Management's Discussion and Analysis of Results of
Operations and Financial Condition on pages 42 through 50 of the Puritan-Bennett
Annual Report to Stockholders for fiscal year ending January 31, 1994 is
incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data.
- - ------- --------------------------------------------
The consolidated financial statements, together with the report thereon of
independent accountants, dated March 7, 1994, on pages 24 through 41 of the
Puritan-Bennett Annual Report to Stockholders for fiscal year ending January 31,
1994 are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
- - ------- ---------------------------------------------------------------
Financial Disclosure.
---------------------
There are no changes or disagreements to report.
18
<PAGE>
PART III
--------
Item 10. Directors and Executive Officers of the Company.
- - -------- ------------------------------------------------
All information required by this item is incorporated herein by reference from
the Company's proxy statement, which will be filed within 120 days of January
31, 1994 except with respect to executive officers of the Company.
The unnumbered item, "Executive Officers of the Company", following Item 4,
Part I is incorporated by reference.
Item 11. Executive Compensation.
- - -------- -----------------------
All information required by this item is incorporated herein by reference from
the Company's proxy statement, which will be filed within 120 days of January
31, 1994.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
- - -------- ---------------------------------------------------------------
All information required by this item is incorporated herein by reference from
the Company's proxy statement, which will be filed within 120 days of January
31, 1994.
Item 13. Certain Relationships and Related Transactions.
- - -------- -----------------------------------------------
All information required by this item is incorporated herein by reference from
the Company's proxy statement, which will be filed within 120 days of January
31, 1994.
Item 405. Compliance with Section 16(a) of the Exchange Act.
- - --------- --------------------------------------------------
All information required by this item is incorporated herein by reference from
the Company's proxy statement, which will be filed within 120 days of January
31, 1994.
PART IV
-------
Item 14.
- - --------
Exhibits, Financial Statement Schedules and Reports on Form 8-K.
- - ----------------------------------------------------------------
(a) (1) and (2)--List of Financial Statements and Financial Statement
Schedules:
The following consolidated financial statements of Puritan-Bennett
Corporation and Subsidiaries, included in the Puritan-Bennett Annual Report
to Stockholders for fiscal year ending January 31, 1994 are incorporated by
reference in Item 8:
Consolidated Balance Sheets - January 31, 1994 and 1993 (incorporated
herein by reference to page 25 of the Puritan-Bennett Annual Report to
Stockholders for fiscal year ending January 31, 1994).
19
<PAGE>
Consolidated Statements of Operations - Years ended January 31, 1994 and
1993, December 31, 1991 and the transition period ended January 31, 1992
(incorporated herein by reference to page 26 of the Puritan-Bennett Annual
Report to Stockholders for fiscal year ending January 31, 1994).
Consolidated Statements of Stockholders' Equity - Years ended January 31,
1994, 1993, December 31, 1991 (incorporated herein by reference to page 27
of the Puritan-Bennett Annual Report to Stockholders for fiscal year ending
January 31, 1994).
Consolidated Statements of Cash Flows - Years ended January 31, 1994 and
1993, December 31, 1991 and the transition period ended January 31, 1992
(incorporated herein by reference to page 28 of the Puritan-Bennett Annual
Report to Stockholders for fiscal year ending January 31, 1994).
Notes to Consolidated Financial Statements - January 31, 1994,
(incorporated herein by reference to pages 29 through 41 of the Puritan-
Bennett Annual Report to Stockholders for fiscal year ending January 31,
1994).
The following Consolidated Financial Statement Schedules of the Puritan-
Bennett Corporation and Subsidiaries are included in Item 14(d):
Schedule II - Amounts Receivable from Related Parties and Underwriters,
Promoters and Employees Other Than Related Parties - Years ended January
31, 1994 and 1993, December 31, 1991 and the transition period ended
January 31, 1992.
Schedule V - Property, Plant and Equipment - Years ended January 31, 1994
and 1993, December 31, 1991 and the transition period ended January 31,
1992.
Schedule VI - Accumulated Depreciation, Depletion and Amortization of
Property, Plant and Equipment - Years ended January 31, 1994 and 1993,
December 31, 1991 and transition period ended January 31, 1992.
Schedule VIII - Valuation and Qualifying Accounts - Years ended January 31,
1994 and 1993, December 31, 1991 and the transition period ended January
31, 1992.
Schedule X - Supplementary Income Statement Information - Years ended
January 31, 1994 and 1993, December 31, 1991 and the transition period
ended January 31, 1992.
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and therefore
have been omitted.
(3)--Listing of Exhibits
Exhibits required by Item 601 of Regulation S-K are listed in the Exhibit
Index which is incorporated herein by reference.
20
<PAGE>
(b) Reports on Form 8-K
-------------------
No Form 8-K was filed during the quarter ending January 31, 1994.
(c) Exhibits
--------
The response to this portion of Item 14 is submitted as a separate section
to this report.
(d) Financial Statement Schedules
-----------------------------
The response to this portion of Item 14 is submitted as a separate section
of this report.
OTHER MATTERS
For the purposes of complying with the amendments to the rules governing Form
S-8 (effective July 13, 1990) under the Securities Act of 1933, the undersigned
registrant hereby undertakes as follows, which undertaking shall be incorporated
by reference into registrant's Registration Statements on Form S-8, Registration
Nos. 2-98132 (filed June 3, 1985) and 33-26495 (filed January 11, 1989):
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
21
<PAGE>
SIGNATURES
- - ----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
PURITAN-BENNETT CORPORATION
-------------------------------------
(Registrant)
4/5/94 /s/ Burton A. Dole, Jr.
- - ------ --------------------------------
Date Burton A. Dole, Jr.
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.
/s/ Burton A. Dole, Jr. 4/5/94 /s/ Daniel C. Weary 4/5/94
- - --------------------------------------- -----------------------------------
Burton A. Dole, Jr. Date Daniel C. Weary Date
Chairman of the Board, Director
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Charles A. Duboc 4/5/94 /s/ Frank P. Wilton 4/5/94
- - --------------------------------------- -----------------------------------
Charles A. Duboc Date Frank P. Wilton Date
Director Director
/s/ Lee A. Robbins 4/5/94
- - ---------------------------------------
Lee A. Robbins Date
Vice President, Chief Financial
Officer and Controller
(Principal Financial Officer and
Principal Accounting Officer)
22
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
COL. A COL. B COL. C COL. D COL. E
- - ------------------------------------------------------------------------------------------------------------------------------------
NAME OF DEBTOR DEDUCTIONS BALANCE AT END OF PERIOD
- - ------------------------------------------------------------------------------------------------------------------------------------
Balance at Beginning Additions (1) (2) (1) (2)
of Period Amounts Collected Amounts Written Off Current Not Current
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Year Ended January 31, 1994
7% due on demand:
Robert Doyle $ __ 30,000 __ __ $30,000 $ __
John Morrow __ 12,300 __ __ 12,300 __
Alexander Rankin __ 325,000 325,000 __ __ __
-------- ------- ------- ------- ------- --------
Total $ __ 367,300 325,000 __ $42,300 $ __
======== ======= ======= ======= ======= ========
17 year mortgage loan
Robert Doyle $178,995 __ __ __ $ $178,995 (A)
David Niles 112,679 __ 8,670 104,009 __ __ (B)
-------- ------- ------- ------- ------- --------
Total $291,674 __ 8,670 104,009 $ $178,995
======== ======= ======= ======= ======= ========
</TABLE>
(A) Contingent interest equal to 19.16% of the net appreciated value of the
mortgaged property, due and owing to the Company upon the occurence of any
one of certain events described in the loan note, including the sale or
transfer of the property encumbered.
(B) The balance of this loan was forgiven in connection with a relocation at
the request of the Company during fiscal year 1994.
23
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
COL. A COL. B COL. C COL. D COL. E
- - ---------------------------------------------------------------------------------------------------------------------------------
DEDUCTIONS BALANCE AT END OF PERIOD
- - ---------------------------------------------------------------------------------------------------------------------------------
NAME OF DEBTOR Balance at Beginning Additions (1) (2) (1) (2)
of Period Amounts Collected Amounts Written Off Current Not Current
- - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Year Ended January 31, 1993
11% due on demand:
Robert Doyle $7,048 __ 7,048 __ $ __ $ __
--------- ------------ -------- ------------- ---------- ---------
Total $7,048 __ 7,048 __ $ __ $ __
========= ============ ======== ============= ========== =========
11.5% due on demand:
Robert Grimes $75,000 __ 75,000 __ $ __ $ __
--------- ------------ -------- ------------- ---------- ---------
Total $75,000 __ 75,000 __ $ __ $ __
========= ============ ======== ============= ========== =========
17 year mortgage loan
Robert Doyle $178,995 __ __ __ $ $178,995 (A)
David Niles 121,378 __ 8,699 __ __ 112,679 (B)
--------- ------------ -------- ------------- ---------- ---------
Total $300,373 __ 8,699 __ $ __ $291,674
========= ============ ======== ============= ========== =========
</TABLE>
(A) Contingent interest equal to 19.16% of the net appreciated value of the
mortgaged property, due and owing to the Company upon the occurence of any
one of certain events described in the loan note, including the sale or
transfer of the property encumbered.
(B) Contingent interest equal to 47.4% of the net appreciated value of the
mortgaged property, due and owing to the Company upon the occurence of any
one of certain events described in the loan note, including the sale or
transfer of the property encumbered.
24
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
COL. A COL. B COL. C COL. D COL. E
- - ------------------------------------------------------------------------------------------------------------------------------
DEDUCTIONS BALANCE AT END OF PERIOD
- - ------------------------------------------------------------------------------------------------------------------------------
NAME OF DEBTOR Balance at Beginning Additions (1) (2) (1) (2)
of Period Amounts Collected Amounts Written Off Current Not Current
- - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Transition Period Ended January 31, 1992
11% due on demand:
Robert Doyle $7,048 __ __ __ $7,048 $ __
-------- ------ ------ ------ ------- --------
Total $7,048 __ __ __ $7,048 $ __
======== ====== ====== ====== ======= ========
11.5% due on demand:
Robert Grimes $75,000 __ __ __ $75,000 $ __
-------- ------ ------ ------ ------- --------
Total $75,000 __ __ __ $75,000 $ __
======== ====== ====== ====== ======= ========
17 year mortgage loan
Robert Doyle $178,995 __ __ __ $ __ $178,995 (A)
David Niles 121,378 __ __ __ __ 121,378 (B)
-------- ------ ------ ------ ------- --------
Total $300,373 __ __ __ $ __ $300,373
======== ====== ====== ====== ======= ========
</TABLE>
(A) Contingent interest equal to 19.16% of the net appreciated value of the
mortgaged property, due and owing to the Company upon the occurrence of any
one of certain events described in the loan note, including the sale or
transfer of the property encumbered.
(B) Contingent interest equal to 47.4% of the net appreciated value of the
mortgaged property, due and owing to the Company upon the occurrence of any
one of certain events described in the loan note, including the sale or
transfer of the property encumbered.
25
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
COL. A COL. B COL. C COL. D COL. E
- - -------------------------------------------------------------------------------------------------------------------------------
DEDUCTIONS BALANCE AT END OF PERIOD
- - -------------------------------------------------------------------------------------------------------------------------------
NAME OF DEBTOR Balance at Beginning Additions (1) (2) (1) (2)
of Period Amounts Collected Amounts Written Off Current Not Current
- - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Year Ended December 31, 1991
10% due on demand:
Maurice Blais $ __ 150,000 150,000 __ $ __ $ __
-------- ------- ------- ------- -------- --------
Total $ __ 150,000 150,000 __ $ __ $ __
======== ======= ======= ======= ======== ========
11% due on demand:
David Niles $130,047 __ 130,047(A) __ __ $ __
Robert Doyle 45,000 __ 37,952 __ $7,048 __
-------- ------- ------- ------- -------- --------
Total $175,047 __ 167,999 __ $7,048 $ __
======== ======= ======= ======= ======== ========
11.5% due on demand:
Robert Grimes $200,000 __ 125,000 __ $75,000 $ __
-------- ------- ------- ------- -------- --------
Total $200,000 __ 125,000 __ $75,000 $ __
======== ======= ======= ======= ======== ========
12% due on demand:
Robert Doyle $191,045 __ 191,045 (B) __ $ __ $ __
-------- ------- ------- ------- -------- --------
Total $191,045 __ 191,045 __ $ __ $ __
======== ======= ======= ======= ======== ========
17-year mortgage loan:
Robert Doyle $ __ 178,995 __ __ $ __ $178,995 (C)
David Niles $ __ 130,047 8,669 __ $ __ 121,378 (D)
-------- -------- ------- ------- -------- --------
Total $ __ 309,042 8,669 __ $ __ $300,373
======== ======== ======= ======= ======== ========
</TABLE>
26
<PAGE>
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
Year Ended December 31, 1991 - Continued
(A) This note was replaced with a 17-year mortgage loan on December 31, 1991.
(B) Cash payments on this demand note totaled $12,050 during 1991; the
remaining balance was replaced with a 17-year mortgage loan on December
31, 1991.
(C) Contingent interest equal to 19.16% of the net appreciated value of the
mortgaged property, due and owing to the Company upon the occurrence of
any one of certain events described in the loan note, including the sale
or transfer of the property encumbered.
(D) Contingent interest equal to 47.4% of the net appreciated value of the
mortgaged property, due and owing to the Company upon the occurence of
any one of certain events described in the loan note, including the sale
or transfer of the property encumbered.
27
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
COL. A COL. B COL. C COL. D COL. E COL. F
- - --------------------------------------------------------------------------------------------------------------------
Balance at Beginning Additions Other Changes - Add Balance at End
CLASSIFICATION of Period at cost Retirements (Deduct) - Describe of Period
- - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended January 31, 1994:
Land and Land Improvements $9,965,922 12,976 7,416 __ $9,971,482
Buildings 30,966,345 573,185 184,797 __ 31,354,733
Machinery and Equipment 111,577,442 17,510,035 8,833,628 (6,925,425)(B) 113,328,424
Leasehold Improvements 5,014,130 341,854 169,413 (880,029)(B) 4,306,542
----------- ---------- --------- ------------ ------------
Total $157,523,839 18,438,050 9,195,254 (7,805,454) $158,961,181
=========== ========== ========= ============ ============
Year Ended January 31, 1993:
Land and Land Improvements $9,997,925 __ 32,003 __ $9,965,922
Buildings 26,427,842 4,620,199 81,696 __ 30,966,345
Machinery and Equipment 95,847,864 17,630,335 1,900,757 __ 111,577,442
Leasehold Improvements 7,062,499 432,984 2,481,353 __ 5,014,130
----------- ---------- --------- ------------ ------------
Total $139,336,130 22,683,518 4,495,809 __ $157,523,839
=========== ========== ========= ============ ============
Transition Period Ended January 31, 1992:
Land and Land Improvements $10,236,982 __ 239,057 __ $9,997,925
Buildings 26,782,182 __ 354,340 __ 26,427,842
Machinery and Equipment 93,943,343 2,035,230 130,709 __ 95,847,864
Leasehold Improvements 6,959,018 103,481 __ __ 7,062,499
----------- ---------- --------- ------------ ------------
Total $137,921,525 2,138,711 724,106 __ $139,336,130
=========== ========== ========= ============ ============
Year Ended December 31, 1991:
Land and Land Improvements $10,203,870 33,552 440 __ $10,236,982
Buildings 17,253,028 9,536,382(A) 7,228 __ 26,782,182
Machinery and Equipment 81,096,634 16,328,705 3,481,996 __ 93,943,343
Leasehold Improvements 6,419,239 539,779 __ __ 6,959,018
----------- ---------- --------- ------------ ------------
Total $114,972,771 26,438,418 3,489,664 __ $137,921,525
=========== ========== ========= ============ ============
</TABLE>
(A) Construction of Bennett building in Carlsbad, CA.
(B) Write-downs related to restructuring
28
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
COL. A COL. B COL. C COL. D COL. E COL. F
- - ---------------------------------------------------------------------------------------------------------------------------
Balance at Beginning Additions Charged to Other Changes - Add Balance at End
DESCRIPTION of Period Costs and Expenses Retirements (Deduct) - Describe of Period
- - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended January 31, 1994:
Land and Land Improvements $122,636 20,217 891 __ $141,962
Buildings 3,533,993 1,131,354 111,492 __ 4,553,855
Machinery and Equipment 60,977,225 11,074,509 7,516,988 (1,933,637)(A) 62,601,109
Leasehold Improvements 2,928,266 439,047 121,700 (474,825)(A) 2,770,788
----------- ---------- --------- ----------- -----------
Total $67,562,120 12,665,127 7,751,071 (2,408,462) $70,067,714
=========== ========== ========= =========== ===========
Year Ended January 31, 1993:
Land and Land Improvements $118,999 24,640 21,003 __ $122,636
Buildings 2,451,220 1,159,225 76,452 __ 3,533,993
Machinery and Equipment 52,793,008 9,430,910 1,246,693 __ 60,977,225
Leasehold Improvements 4,952,983 419,198 2,443,915 __ 2,928,266
----------- ---------- --------- ---------- -----------
Total $60,316,210 11,033,973 3,788,063 __ $67,562,120
=========== ========== ========= ========== ===========
Transition Period Ended January 31, 1992:
Land and Land Improvements $117,290 1,709 __ __ $118,999
Buildings 2,371,641 79,579 __ __ 2,451,220
Machinery and Equipment 52,117,166 787,838 111,996 __ 52,793,008
Leasehold Improvements 4,901,308 51,675 __ __ 4,952,983
----------- ---------- --------- ---------- -----------
Total $59,507,405 920,801 111,996 __ $60,316,210
=========== ========== ========= ========== ===========
Year Ended December 31, 1991:
Land and Land Improvements $97,681 20,049 440 __ $117,290
Buildings 2,172,038 204,004 4,401 __ 2,371,641
Machinery and Equipment 45,918,072 8,737,315 2,538,221 __ 52,117,166
Leasehold Improvements 3,908,236 1,012,828 19,756 __ 4,901,308
----------- ---------- --------- ---------- -----------
Total $52,096,027 9,974,196 2,562,818 __ $59,507,405
=========== ========== ========= ========== ===========
(A) Write-down related to restructuring Buildings - 20 to 50 years
Machinery and Equipment - 3 to 12 years
Leasehold Improvements - terms of lease
</TABLE>
29
<PAGE>
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- - -------------------------------------------------------------------------------------------------------------------------------
ADDITIONS
------------------------------------
DESCRIPTION Balance at (1) (2) Deductions - Describe Balance at
Beginning Charged to Cost Charged to Other End
of Period and Expenses Accounts - Describe of Period
- - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended January 31, 1994:
Allowances deducted from
asset accounts:
Allowance for doubtful accounts $645,590 928,658 408,868(E) 222,150(A) $1,760,966
Inventory reserves $1,502,182 2,683,723 4,717,959(F) 1,748,174(B) $7,155,690
Deferred revenue $5,531,088 __ 5,774,744 1,344,037 $9,961,795(C)
Tax Valuation $0 11,148,000 4,548,000(D) __ $15,696,000
Year Ended January 31, 1993:
Allowances deducted from
asset accounts:
Allowance for doubtful accounts $546,126 449,426 __ 349,962(A) $645,590
Inventory reserves $3,026,118 995,415 __ 2,519,351(B) $1,502,182
Deferred revenue $3,058,780 __ 3,079,308 607,000 $5,531,088(C)
Transition Period Ended January 31, 1992:
Allowances deducted from
asset accounts:
Allowance for doubtful accounts $579,385 28,596 __ 61,855(A) $546,126
Inventory reserves $3,190,911 101,001 __ 265,794(B) $3,026,118
Deferred revenue $2,648,749 __ 447,031 37,000 $3,058,780(C)
Year Ended December 31, 1991:
Allowances deducted from
asset accounts:
Allowance for doubtful accounts $524,408 323,281 __ 268,304(A) $579,385
Inventory reserves $1,234,816 3,919,929 __ 1,963,834(B) $3,190,911
Deferred revenue $0 __ 2,648,749 __ $2,648,749(C)
</TABLE>
30
<PAGE>
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS - CONTINUED
(A) Represents accounts written off, net of recoveries.
(B) Represents inventory disposed of or otherwise written off.
(C) Relates to extended warranty agreements offered by the company which are
amortized over the life of the agreement with the related warranty costs
charged to expense as incurred.
(D) This amount was recorded in the cummulative effect at the date of adoption
of SFAS 109.
(E) Write-downs related to restructuring ($207,000) and the sale of the
Company's home care services business in South Florida ($201,868).
(F) Write-down related to restructuring.
31
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
COL. A COL. B
- - ------------------------------------------------------------------------------
ITEM Charged to Costs and Expenses
- - ------------------------------------------------------------------------------
<S> <C>
Year Ended January 31, 1994:
Maintenance and Repairs *
Taxes other than payroll and income *
Royalties *
Advertising costs *
Depreciation and Amortization of
Intangible Assets *
Year Ended January 31, 1993:
Maintenance and Repairs *
Taxes other than payroll and income *
Royalties *
Advertising costs *
Depreciation and Amortization of
Intangible Assets *
Transition Period Ended January 31, 1992:
Maintenance and Repairs 219,390
Taxes other than payroll and income *
Royalties *
Advertising costs *
Depreciation and Amortization of
Intangible Assets *
Year Ended December 31, 1991:
Maintenance and Repairs *
Taxes other than payroll and income *
Royalties *
Advertising costs *
Depreciation and Amortization of
Intangible Assets *
</TABLE>
32
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS FILED WITH SECURITIES AND EXCHANGE COMMISSION
(NUMBER AND DESCRIPTION OF EXHIBIT)
Page No.
<S> <C> <C> <C>
(2) (a) Stock Purchase Agreement dated
December 14, 1993 included in Form
8-K dated January 28, 1994 and
incorporated herein by reference.
(3) (a) Articles of Incorporation as
amended, included in Annual Report
for 1987 on Form 10-K and
incorporated herein by reference.
(b) By-laws adopted on July 31, 1991,
included in Form 10-Q for the
Quarter ended September 30, 1991
and incorporated herein by
reference.
(4) (a) Shareholder Rights Agreement dated
May 2, 1989 included in Form 8-K
dated May 15, 1989 and incorporated
herein by reference.
Long-term debt instruments of the
Company in amounts not exceeding 10% of
the total assets of the Company and its
Subsidiaries on a consolidated basis
will be furnished to the Commission upon
request.
(10) (a) Employment agreement - Burton A.
Dole, Jr. 35
(b) 1979 Employee Stock Benefit Plan
(as amended and restated through
the eighth amendment) and the ninth
amendment thereto included in the
Annual Report for 1989 on Form 10-K
and incorporated herein by
reference.
(c) Incentive Compensation Plan, as
amended. 40
(d) (i) Supplemental Retirement Benefit
Plan, included in Annual Report for
1985 on Form 10-K and incorporated
herein by reference.
(ii) Agreement dated August 13,
1993 between the Company and Burton
A. Dole, Jr. 50
(iii) Agreement dated August 10,
1993 between the Company and John
H. Morrow. 52
(e) Restated Deferred Compensation Plan. 54
</TABLE>
33
<PAGE>
(f) Amended and restated Retirement
Plan for Non-Employee Directors
included in Form 10-Q for the
Quarter ended September 30, 1991
and incorporated herein by
reference.
(g) 1988 Employee Stock Benefit Plan,
as amended, included in the Annual
Report for fiscal year 1993 on Form
10-K and incorporated herein by
reference.
(h) Promissory note dated June 21, 1993
between the Company and Alexander
R. and Suzanne D. Rankin. 61
(i) Promissory note dated December 19,
1991 between the Company and Robert
L. and Melanie M. Doyle included in
Annual Report for 1991 on Form 10-K
and incorporated herein by
reference.
(j) Indemnification Agreement among the
Company and its Directors. 62
(11) Statement re: Computation of Per Share
Earnings. 73
(13) Excerpts of the Puritan-Bennett
Corporation Annual Report to
Stockholders for fiscal year ending
January 31, 1994. 74
(21) Subsidiaries of the Company. 75
(23) Consent of Independent Accountants. 76
- - ----------------------------------------
(All other exhibits are inapplicable)
Copies of the above exhibits are available upon written request to the
Stockholder Services Department, Puritan-Bennett Corporation, 9401
Indian Creek Parkway, Overland Park, Kansas 66210.
34
<PAGE>
EXHIBIT 10(a)
April 25, 1980
Burton Andrew Dole, Jr.
16 Captain Forbush
Acton, Massachusetts 01720
Dear Mr. Dole:
Pursuant to authorization of its Board of Directors (the "Board"), Puritan-
Bennett Corporation ("Puritan-Bennett") hereby agrees to employ you as chief
executive officer of Puritan-Bennett and by your acceptance hereof you hereby
accept such employment, upon the terms and conditions hereinafter set forth.
1. Term, Compensation and Services
-------------------------------
1.1 The term of your employment pursuant to this agreement shall commence
within 30 days after this date on a date convenient to you and shall expire,
subject to earlier termination of employment as hereinafter provided, five years
thereafter. On each anniversary date of the commencement of your employment the
term of your employment shall be automatically extended for an additional one-
year period unless, on or prior to any such anniversary date your employment
shall have been terminated as hereinafter provided.
1.2 During the term of your employment, you will be compensated at the
annual rate as may from time to time be fixed by resolution of the Board,
provided, however, that your annual rate of compensation shall in no event be
less than $120,000, and provided further that such minimum annual rate may be
increased by resolution of the Board which resolution shall be binding on
Puritan-Bennett for the remaining term of this agreement. Your annual
compensation shall be payable semi-monthly and you shall be reimbursed for
business, travel and entertainment expenses in accordance with Puritan-Bennett's
prevailing policies. In its discretion the Board may pay you additional salary
or bonuses, and, of course, Puritan-Bennett will observe the provisions of its
letter to you dated April 19, 1980.
<PAGE>
Mr. Burton A. Dole, Jr.
April 25, 1980
Page 2
1.3 You agree to devote your full business time and efforts to the
rendition of such services to Puritan-Bennett as may be designated by the Board,
subject, however, to temporary illness and customary vacations. You will at all
times be subject to the direction and supervision of the Board. 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 Board.
2. Termination
-----------
2.1 Your employment shall be subject to termination by Puritan-Bennett at
any time for cause if you shall fail in any material respect to perform your
duties hereunder other than by reason of illness, shall breach any provision
hereof in any material respect, or shall engage in any dishonest or fraudulent
acts or conduct in the performance of your duties to Puritan-Bennett. In
addition, your employment hereunder shall terminate upon your resignation or
retirement from employment, whether voluntary or in accordance with the
prevailing retirement policy of Puritan-Bennett. Upon any termination under
this paragraph 2.1 all obligations of Puritan-Bennett hereunder shall
immediately terminate and, without limiting the foregoing, Puritan-Bennett shall
have no obligation under this agreement to make payments to you in respect of
any period subsequent to such termination.
2.2 Your employment shall be subject to termination by Puritan-Bennett at
any time without cause by notifying you in writing of such termination not less
than ten days prior to the effective date thereof. Upon any termination of
employment pursuant to this paragraph 2.2, Puritan-Bennett shall be obligated to
pay to you, or to your estate if you shall not be living, the amount of
compensation, at the minimum annual rate then in effect, which would have
otherwise been payable to you for the remainder term of this agreement assuming
no further extensions of the term of employment hereunder pursuant to paragraph
1.1 hereof. The total amount owing to you or your estate under this paragraph
2.2 shall be paid in not more than ninety equal monthly installments as the
Board, in its discretion, may determine. Installment payments shall
<PAGE>
Mr. Burton A. Dole, Jr.
April 25, 1980
Page 3
commence as soon as practicable following the effective date of termination and
shall not bear interest. For purposes of this paragraph 2.2 any material breach
by Puritan-Bennett of its obligations hereunder which are not cured after thirty
days written notice given to Puritan-Bennett by you, may, at your option, be
treated by you as a termination of your employment without cause.
2.3 You shall have the option to terminate your employment hereunder in
the event that: (i) Puritan-Bennett shall merge or consolidate with any other
corporation(s) wherein Puritan-Bennett shall not be the surviving corporation;
(ii) Puritan-Bennett shall liquidate or dissolve or shall sell, transfer or
otherwise dispose of substantially all of its properties, business and assets;
or (iii) any other corporation, person, entity or group thereof acting in
concert shall directly or indirectly acquire control of voting stock of Puritan-
Bennett representing 50% or more of all voting stock of Puritan-Bennett,
provided that appointment as a proxy for purposes of voting shares at any
meeting of stockholders shall not be considered to be a direct or indirect
acquisition of control of the shares subject to such proxy. Upon occurrence of
any of the foregoing events and you shall have a period of ninety days
thereafter to exercise the termination option herein provided by giving written
notice of such exercise to Puritan-Bennett. If you shall exercise such option
by reason of an event or events specified in the foregoing clause (i) or clause
(ii) of this paragraph 2.3, Puritan-Bennett shall be obligated to pay to you
such amount in such manner as in the event of a termination without cause
pursuant to paragraph 2.2 hereof. If you shall exercise such option by reason
of the event specified in the foregoing clause(iii) of this paragraph 2.3,
Puritan-Bennett shall be obligated to pay to you, in not more than fifty-four
installments, an amount equal to three years' compensation at the minimum annual
rate then in effect. Installment payments hereunder shall commence as soon as
practicable following exercise of the termination option and shall not bear
interest.
2.4 In the event of your death prior to the effective date of any
termination of your employment pursuant to paragraph 2.1, 2.2 or 2.3 hereof,
Puritan-Bennett shall be obligated to pay to your estate, in not more than
thirty-six monthly installments, an amount equal to two years' compensation at
the minimum annual rate in effect hereunder at the date of death. Installment
payments shall commence as soon as practicable following the date of death and
shall not bear interest.
<PAGE>
Mr. Burton A. Dole, Jr.
April 25, 1980
Page 4
2.5 In no event shall any termination of your employment under any
provision of this agreement relieve you from complying fully with your
agreements set forth in paragraph 3.1 hereof.
3. Non-Competition Agreement
-------------------------
3.1 During the term of your employment and for a period of sixty months
following termination of employment for any reason, or following expiration of
the term hereof, you agree that you will not: (i) directly or indirectly
compete with Puritan-Bennett, or engage in or act as an officer or director, or
on an individual basis as an employee or an agent of any entity which is engaged
in any business in which Puritan-Bennett is engaged at the time of such
termination; or (ii) divulge to anyone any trade secret or corporate information
concerning Puritan-Bennett or otherwise use any such information to the
detriment of Puritan-Bennett.
3.2 The foregoing paragraph 3.1 shall not prohibit you from investing in
any securities of any corporation whose securities, or any of them, are listed
on a national securities exchange or traded in the over-the-counter market if
you shall own less than 3% of the outstanding voting stock of the corporation.
4. General Provisions
------------------
4.1 In the event you shall inquire, by written notice to Puritan Bennett,
whether any proposed action on your part would be considered by Puritan-Bennett
to be prohibited by or in breach of the terms hereof, Puritan-Bennett shall have
forty-five days after the giving of such notice to express in a writing to you
its position with respect thereto, and in the event such writing shall not be
given to you, such proposed action (as set forth in your notice to Puritan-
Bennett) shall not be a violation of or in breach of the terms hereof.
4.2 Except as context otherwise requires, references herein to Puritan-
Bennett shall include its subsidiaries, references to the Board shall include
committees thereof to the extent that any applicable powers of the board are or
shall be delegated to any such committees, and references to the term of your
employment shall include all periods of extension subsequent to the initial term
hereof.
<PAGE>
Mr. Burton A. Dole, Jr.
April 25, 1980
Page 5
4.3 The terms and conditions hereof shall constitute the entire agreement
between the parties and shall supersede all prior written or oral understandings
between you and Puritan-Bennett, except for its letter to you dated April 19,
1980. The agreement may not be amended or altered except in a writing signed by
the parties and approved by a resolution of the Board. Neither party may assign
its rights hereunder without the written consent of the other.
4.4 All notices required or permitted to be given pursuant to this
agreement shall be given in writing, if to you, then at the address set forth at
the beginning hereof; and, if to Puritan-Bennett, then to the Secretary of
Puritan-Bennett at Puritan-Bennett's corporate office. All notices shall be
deemed to have been given when delivered in person or, if mailed, 48 hours after
depositing same in the United States mail, properly addressed, and postage
prepaid.
Very truly yours,
PURITAN-BENNETT CORPORATION
By /s/ John B. Francis
------------------------------
Chairman of the Board
Acceptance:
The foregoing terms and
conditions are accepted
and agreed to effective
this 25th day of April,
1980.
/s/ Burton Andrew Dole, Jr.
- - ---------------------------
Burton Andrew Dole, Jr.
<PAGE>
EXHIBIT 10(c)
PURITAN-BENNETT CORPORATION
MANAGEMENT INCENTIVE BONUS PLAN
(Revised April 4, 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. 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 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
1
<PAGE>
Corporate and group/division levels in recognition of the fact that our
decision to establish a manufacturing operation in Ireland will tend 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 directly identifiable to a particular group/division
(which are allocated to such group/division) for each
2
<PAGE>
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.
Each participant's bonus 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.
3
<PAGE>
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.
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;
(ii) accomplishments against predetermined objectives.
The appraisal of performance against Business Improvement Objectives
will be made for each participant by the immediate supervisor and
forwarded to the CEO and/or COO for final approval.
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
4
<PAGE>
the CEO, whether or not they are Corporate Officers. The CEO and/or COO
will approve all other proposed bonuses. 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 causality
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
5
<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.
6
<PAGE>
ATTACHMENT A
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%
7
<PAGE>
TABLE I
Return on Net
Assets (%) as B O N U S P O O L
Defined in Sec. I
<TABLE>
<CAPTION>
Pre-Bonus Pre Tax Pre-Bonus After-Tax
- - ----------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
At Least Not More At Not More Corporate Corporate Corporate
Than Least Than 1985 1986 1987 & Beyond
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>
8
<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>
9
<PAGE>
APPENDIX I
ILLUSTRATIVE EXAMPLE
PARTICIPANT - - A
BUSINESS UNIT - - PURITAN GROUP, BENNETT GROUP
(ex. FOxS) & AERO SYSTEMS
<TABLE>
<CAPTION>
BONUS BONUS
BONUS POOL PERCENT
ALLOCATION RATIO EARNED
----------- ----- --------
<S> <C> <C> <C>
AFTER-TAX
ROA FORMULA - -
BUSINESS UNIT 13.8% 42% 1.75 73.5%
----
CORPORATE 10.2% 28% 1.60 44.8%
--- ----
70%
BUSINESS
IMPROVEMENT OBJECTIVES 30% .75 22.5%
----
TOTAL 100% 140.8%
--- -------
TARGET % OF SALARY 15%
-------
PAYOUT % OF SALARY 21.12%
-------
EARNED SALARY -- FY 1995 $70,000
-------
BONUS EARNED $14,784
-------
</TABLE>
10
<PAGE>
EXHIBIT 10(d)(ii)
AGREEMENT
---------
THIS AGREEMENT is made this 13th day of August, 1993 by and between
Puritan-Bennett Corporation, a Delaware corporation (hereinafter referred to as
the "Corporation"), and Burton A. Dole, Jr. (hereinafter referred to as the
"Employee").
WHEREAS, the Corporation has adopted the Puritan-Bennett Corporation
Supplemental Retirement Benefit Plan effective as of September 1, 1985 (the
"Plan") which provides benefits that supplement benefits provided under the
Restated Puritan-Bennett Pension Plan (the "Pension Plan"); and
WHEREAS, the Corporation and the Employee have entered into an agreement
pursuant to which the Employee became a Member under the terms of the Plan; and
WHEREAS, the Corporation has considered terminating the Plan, but is
willing to not do so at this time in exchange for Employee's agreement to the
amendments to the Plan set forth herein; and
WHEREAS, the Employee and the Corporation desire to make the following
changes to the Plan.
NOW, THEREFORE, in consideration of the mutual covenants set forth herein,
the Employee and the Corporation agree as follows:
A. That the Plan shall be amended in the following respects pursuant to a
First Amendment to the Plan to be drafted by the Corporation:
1. Section 4, "Retirement Benefits," shall be amended to permit the Member
to select between the same optional forms of payment which are available
under the Pension Plan. Those optional forms of payment are the following:
single life annuity; ten year certain and continuous; early retirement
level income option; and 50%, 75% and 100% contingent annuitant options.
2. Section 5, "Death Benefits", shall be amended to provide death benefits
in a form similar to and calculated in a manner similar to that provided
under the Pension Plan.
That means that if death occurs prior to commencement of payments
under the Plan, then a survivor annuity will be provided to the Member's
spouse for her lifetime only (without any certain number of years of
payment) equal to 50% of the joint and 50% survivor annuity which would
have been payable to the Member during his life if he had survived,
terminated employment at the later of age 55 or his date of death, selected
that form of payment and designated his spouse as the contingent annuitant,
which payments will not begin until the date the Member would have attained
age 55 if he did not attain that age prior to the date of death. No death
benefits will be paid if the Member dies before retirement and is not then
married.
<PAGE>
If death occurs after commencement of payments under the Plan, the
Member's designated beneficiary (which could be the Member's spouse or some
other beneficiary) will receive an amount equal to twelve times the monthly
amount the Member would have been receiving during life under the Plan if
he had elected a single life annuity (which amount will be paid no matter
which form of payment the Member actually elected to receive from the
Plan). Furthermore, if the Member dies after commencement of payments under
the Plan, payment of additional death benefits will be made only based on
the optional form of payment selected by the member; if a single life
annuity was selected, no further death benefit will be payable.
Employee acknowledges that the foregoing will result in a lesser
amount of death benefits being paid to his beneficiaries pursuant to the
Plan than would be the case if this amendment were not made.
B. The Corporation shall not terminate the Plan at this time but shall
have all rights provided in the Plan for termination or amendment of the Plan
after January 1, 1994.
IN WITNESS WHEREOF, this Agreement has been made as of the date set forth
above.
PURITAN-BENNETT CORPORATION
EMPLOYEE "Corporation"
/s/ Burton A. Dole, Jr. By /s/ Lee A. Robbins
- - ---------------------------- -----------------------------------------------
Burton A. Dole, Jr. Title: Vice President & Chief Executive Officer
----------------------------------------
Address:____________________
- - ----------------------------
-2-
<PAGE>
EXHIBIT 10(d)(iii)
AGREEMENT
---------
THIS AGREEMENT is made this 10th day of August, 1993 by and between
Puritan-Bennett Corporation, a Delaware corporation (hereinafter referred to as
the "Corporation"), and John H. Morrow (hereinafter referred to as the
"Employee").
WHEREAS, the Corporation has adopted the Puritan-Bennett Corporation
Supplemental Retirement Benefit Plan effective as of September 1, 1985 (the
"Plan") which provides benefits that supplement benefits provided under the
Restated Puritan-Bennett Pension Plan (the "Pension Plan"); and
WHEREAS, the Corporation and the Employee have entered into an agreement
pursuant to which the Employee became a Member under the terms of the Plan; and
WHEREAS, the Corporation has considered terminating the Plan, but is
willing to not do so at this time in exchange for Employee's agreement to the
amendments to the Plan set forth herein; and
WHEREAS, the Employee and the Corporation desire to make the following
changes to the Plan.
NOW, THEREFORE, in consideration of the mutual covenants set forth herein,
the Employee and the Corporation agree as follows:
A. That the Plan shall be amended in the following respects pursuant to a
First Amendment to the Plan to be drafted by the Corporation:
1. Section 4, "Retirement Benefits," shall be amended to permit the Member
to select between the same optional forms of payment which are available
under the Pension Plan. Those optional forms of payment are the following:
single life annuity; ten year certain and continuous; early retirement
level income option; and 50%, 75% and 100% contingent annuitant options.
2. Section 5, "Death Benefits", shall be amended to provide death benefits
in a form similar to and calculated in a manner similar to that provided
under the Pension Plan.
That means that if death occurs prior to commencement of payments
under the Plan, then a survivor annuity will be provided to the Member's
spouse for her lifetime only (without any certain number of years of
payment) equal to 50% of the joint and 50% survivor annuity which would
have been payable to the Member during his life if he had survived,
terminated employment at the later of age 55 or his date of death, selected
that form of payment and designated his spouse as the contingent annuitant,
which payments will not begin until the date the Member would have attained
age 55 if he did not attain that age prior to the date of death. No death
benefits will be paid if the Member dies before retirement and is not then
married.
<PAGE>
If death occurs after commencement of payments under the Plan, the
Member's designated beneficiary (which could be the Member's spouse or some
other beneficiary) will receive an amount equal to twelve times the monthly
amount the Member would have been receiving during life under the Plan if
he had elected a single life annuity (which amount will be paid no matter
which form of payment the Member actually elected to receive from the
Plan). Furthermore, if the Member dies after commencement of payments
under the Plan, payment of additional death benefits will be made only
based on the optional form of payment selected by the member; if a single
life annuity was selected, no further death benefit will be payable.
Employee acknowledges that the foregoing will result in a lesser
amount of death benefits being paid to his beneficiaries pursuant to the
Plan than would be the case if this amendment were not made.
B. The Corporation shall not terminate the Plan at this time but shall
have all rights provided in the Plan for termination or amendment of the Plan
after January 1, 1994.
IN WITNESS WHEREOF, this Agreement has been made as of the date set forth
above.
PURITAN-BENNETT CORPORATION
EMPLOYEE "Corporation"
/s/ John H. Morrow By /s/ Lee A. Robbins
- - ----------------------------- --------------------------------------------
John H. Morrow Title: Vice President & Chief Financial Officer
----------------------------------------
Address: 10231 Catalina
--------------------
Overland Park, Kansas 66207
- - -----------------------------------------
-2-
<PAGE>
EXHIBIT 10(e)
RESTATED PURITAN-BENNETT
DEFERRED COMPENSATION PLAN
--------------------------
THIS RESTATEMENT of the 1985 Puritan-Bennett Corporation Deferred
Compensation Plan (the "1985 Plan") is made by the Puritan-Bennett Corporation
(which, together with its subsidiaries and affiliates, shall be referred to
herein as the "Corporation"), effective as of the 1st day of September, 1993
(the "Effective Date").
WHEREAS, the Corporation established and maintains the 1985 Plan,
consisting of separate but identical "Deferred Compensation Agreements" with a
select group of management or highly compensated employees of the Corporation
and "Policy Guidelines" developed by the Corporation; and
WHEREAS, as part of the 1985 Plan each active participant is given the
opportunity to annually elect to defer a portion of his salary and/or bonus for
the next succeeding year; and
WHEREAS, also as part of the 1985 Plan each participant is given the
opportunity to elect, within available options, the form and time of payment of
benefits under the 1985 Plan, and to designate a beneficiary for the payment of
any benefits in the event of his death; and
WHEREAS, pursuant to the 1985 Plan a separate "Investment Account" is
maintained for each participant for the purpose of determining and measuring the
amount of benefits payable to the participant or his beneficiary under the 1985
Plan; and
WHEREAS, the quotients of the Investment Account balances credited to
participants as of the Effective Date, divided by the Gross Up Fraction (which
fraction was determined using the maximum corporate federal income tax rate in
effect on the Effective Date) are reflected on Exhibit A, which balances shall
be the "Beginning Account Balances" under this Plan pursuant to Section 3.01
hereof; and
WHEREAS, the Corporation and each participant desire to amend the terms of
the 1985 Plan effective as of the Effective Date.
NOW, THEREFORE, except as otherwise provided in Section 4.01 hereof, the
1985 Plan, including or consisting of the Deferred Compensation Agreements and
the Policy Guidelines, are void and of no further effect as of the Effective
Date, and the 1985 Plan is hereby amended and restated in its entirety as of the
Effective Date to read as follows (which restated Plan shall be referred to as
the "Plan"):
ARTICLE I
---------
ELIGIBILITY
-----------
The Puritan-Bennett Corporation, by action of its Compensation Committee,
shall determine from time to time the employees who shall be eligible to
contribute to the Plan from among a select group of management or highly
compensated employees of the Corporation.
<PAGE>
Any person to whom an amount is owed by the Corporation pursuant to this Plan or
the 1985 Plan shall be referred to herein individually as a "Participant" and
collectively as the "Participants." At any given time, the persons who are
eligible to contribute to the Plan shall be referred to herein individually as
an "Active Participant" and collectively as the "Active Participants." The
Compensation Committee shall in its sole discretion determine the identity of
all Active Participants; no person shall have the right to be an Active
Participant, without designation as such by the Compensation Committee,
regardless of whether or not such person is a Participant.
ARTICLE II
----------
CONTRIBUTIONS
-------------
Active Participants may contribute all or any portion of their regular
monthly salary, including where applicable, commission ("Salary"), and/or annual
bonus compensation from the Corporation to the Plan (which contributions shall
be referred to herein as "Contributions"); provided that if an Active
Participant contributes any amount to the Plan for or during a calendar year,
the minimum amount of Contribution for such year must be either $100 per month
from salary or, if the Participant elects to make Contributions from bonus only,
then $1,200 from the annual bonus; and provided further that any election to
make Contributions from compensation payments resulting from services performed
during any calendar year must be received by the Corporation no later than
December 31 of the preceding calendar year. Active Participants may elect to
have different amounts or percentages withheld from their monthly salary and
from their annual bonus. If an Active Participant's Contributions for or during
any Plan year total less than $1,200 (or would total less than $1,200 if made),
such Contributions shall not be contributed (if not yet made to the Plan) and,
to the extent of Contributions already made, shall be returned to such person,
without interest or earnings, and required withholdings shall be made from such
returned Contributions. Such returned Contributions shall be deemed to have
never been contributed to the Plan.
ARTICLE III
-----------
ACCOUNT BALANCES
----------------
SECTION 3.01 BEGINNING ACCOUNT BALANCES. Each Participant's Beginning
Account Balance is set forth upon Exhibit A hereto.
SECTION 3.02 CONTRIBUTIONS. Contributions by Active Participants shall be
credited to such Active Participant's Account Balance reflected on the books and
records of the Plan, which books and records shall be maintained by the
Corporation or its designee.
SECTION 3.03 CREDITED EARNINGS. Each Participant's Account Balance and
Contributions shall be credited with earnings (referred to herein as "Credited
Earnings") at an annual rate equal to the Moody's Corporate Yield Average, plus
one percent, as in effect on January 1 of each calendar year (which rate shall
be referred to herein as the "Annual Crediting Rate"). The Annual Crediting
Rate in effect from the Effective Date through December 31, 1993 is 7.97%. The
Annual Crediting Rate shall be applied to the outstanding Account Balance of
each Participant reflected on the books and records of the Plan from time to
time. Contributions shall be credited with Credited Earnings from and after the
date such Contribution is withheld from an Active Participant's compensation.
-2-
<PAGE>
SECTION 3.04 VALUE OF ACCOUNT BALANCE. The value of a Participant's
Account Balance from time to time shall be the sum of the Participant's
Beginning Account Balance, if any, the Participant's Contributions pursuant to
the Plan, and the Participant's Credited Earnings. The Account Balances of the
Participants are used solely as a method for measuring and determining the
amount of benefits payable from the Corporation to each Participant.
ARTICLE IV
----------
PAYMENT OF BENEFITS
-------------------
SECTION 4.01 EXISTING PARTICIPANTS.
(a) Existing Participants Receiving Payments. Any person who was a
Participant in the 1985 Plan immediately prior to the Effective Date (an
"Existing Participant") and whose "Payment Date" or "Benefit Commencement Date"
pursuant to the 1985 Plan occurred prior to the Effective Date shall receive
payment in the amount, at the time and in the form specified by the 1985 Plan.
(b) Existing Participants Not Receiving Payments. An Existing Participant
whose "Payment Date" or "Benefit Commencement Date" pursuant to the 1985 Plan
had not occurred prior to the Effective Date, shall receive payment of an amount
equal to such Existing Participant's Account Balance determined as of the end of
the month preceding the date of payment or commencement of payments, which
amount shall be payable at the time and in the form specified by the 1985 Plan,
except that any such Existing Participant may irrevocably elect prior to
November 30, 1993, to instead receive payment in one of the forms set forth
under Section 4.03 below, and except that any such Existing Participant who is
an active employee of the Corporation on the Effective Date may irrevocably
elect prior to November 30, 1993, to instead receive payment at one of the times
set forth under Section 4.02 below.
SECTION 4.02 NEW PARTICIPANTS--TIME OF PAYMENT. Any individual who
becomes a Participant for the first time on or after the Effective Date (a "New
Participant") shall make, prior to making any Contributions to the Plan, a one-
time irrevocable election, from among the following options, as to the time as
of which payment of benefits due to him pursuant to the Plan will be made or
commence (such time being sometimes referred to herein as the New Participant's
"Payment Date" or, in the case of benefits payable in installments, the "Benefit
Commencement Date"):
(a) the date of termination of the Participant's employment with the
Corporation, including termination by reason of the Participant becoming
"totally disabled" (as defined in Section 4.06);
(b) the earlier of - (i) the date the Participant becomes "totally
disabled", or (ii) the date the Participant attains age sixty (60), whether
before or after termination of employment; or
(c) the earlier of - (i) the date the Participant becomes "totally
disabled", or (ii) the date the Participant attains age sixty-five (65),
whether before or after termination of employment.
-3-
<PAGE>
If a New Participant fails to elect the time of payment of his benefits in
accordance with the foregoing, he shall nevertheless be deemed to have elected
to receive such benefits pursuant to (c) above. Actual payment or commencement
of payment of benefits may be made, at the Corporation's election, at any time
within sixty (60) days following the Payment Date or Benefit Commencement Date
of the Participant.
SECTION 4.03 NEW PARTICIPANTS--FORM OF PAYMENT. Each Participant shall
also make, prior to making any Contribution, a one-time irrevocable election,
with respect to all benefits payable during his lifetime pursuant to the Plan,
as to whether such benefits will be paid in a single lump sum, in monthly
installments for the life of the Participant, or in a combination of the two.
In the event a Participant elects to receive distribution in a combination of
lump sum and installments, such Participant shall also elect a percentage or
amount of his Account Balance that shall be paid in a lump sum and the remainder
shall be used to provide installment payments as if such remainder were the
Participant's entire Account Balance. In the event a New Participant shall fail
to make an election as to the form of payment pursuant to this Section 4.03, his
benefits shall be payable in monthly installments. All required withholdings
shall reduce the payments which Participants are otherwise entitled to receive
pursuant to this Plan.
SECTION 4.04 NEW PARTICIPANTS--AMOUNT OF BENEFITS.
SECTION 4.04(A) LUMP SUM PAYMENT. In the event the benefits payable to a
New Participant during his lifetime are payable in a lump sum pursuant to
Section 4.03, the amount of such lump sum payment shall be the New Participant's
Account Balance as of the end of the month preceding the Payment Date.
SECTION 4.04(B) INSTALLMENT PAYMENTS. In the event the benefits payable to
a New Participant during his lifetime are payable in monthly installments for
the life of the New Participant pursuant to Section 4.03, the amount of such
monthly installments shall be calculated by first determining the New
Participant's Account Balance as of the end of the month preceding the Benefit
Commencement Date as if he had elected to receive a lump sum payment (the
"Ending Account Balance"), which Ending Account Balance shall remain static and
not thereafter receive allocations of Credited Earnings. The monthly payments
shall then be fixed by the Corporation for the calendar year in which the New
Participant's Benefit Commencement Date occurs and for each subsequent calendar
year in advance of the first monthly payment to be made during such year. With
respect to each such calendar year, the monthly payments to be made to a New
Participant during such year (which, in the case of the first and last years
during which payment is made, may be less than twelve monthly payments) shall be
calculated by first determining the product of the Ending Account Balance and
the Annual Crediting Rate in effect for such year, and then dividing that amount
by twelve.
SECTION 4.05 DEATH BENEFITS. Upon the death of a Participant, either before
the date he receives his entire Account Balance in a lump sum payment or before
or after his Benefit Commencement Date, the Participant's designated beneficiary
shall be entitled to receive a monthly benefit for a period of fifteen (15)
years from the date of death of the Participant or, if the beneficiary shall be
the Participant's spouse (at the time of the Participant's death) and such
spouse shall live for more than fifteen (15) years, then for the lifetime of
such
-4-
<PAGE>
spouse. The amount of any such death benefit shall be determined and
redetermined from year to year in the same manner as is provided in Section 4.04
with respect to monthly installments to a Participant during his lifetime. If
the Participant shall die before the date he receives his entire Account Balance
in a lump sum payment or before his Benefit Commencement Date, and before
attainment of age sixty-five (65), the amount of the monthly death benefit shall
be determined in the same manner, except that the value of the Participant's
Ending Account Balance upon which the benefit is based shall be deemed to be the
following percentage of the actual value of such Ending Account Balance:
Age at Death Percentage of Ending
------------ --------------------
Account Balance
---------------
30-40 200%
41-50 175%
51-60 150%
61-64 125%
In the event no beneficiary is designated by a Participant or there is no such
designated beneficiary living at the date of the Participant's death, payment of
the lump sum present value of monthly benefits for the fifteen (15) year
guaranteed payment period shall be made to the Participant's estate. In the
event of the death of all designated beneficiaries after the commencement of
payment of death benefits to such beneficiaries but prior to the end of the
fifteen (15) year guaranteed payment period, payment of the lump sum present
value of the remaining guaranteed monthly benefits shall be made to the estate
of the last such beneficiary or beneficiaries to die. For purposes of the
preceding two sentences, both the amount of the monthly benefits and the
discount rate used in determining the lump sum present value of such monthly
benefits shall be based on the Annual Crediting Rate in effect as of the end of
the month preceding the payment.
SECTION 4.06 TOTALLY DISABLED. For purposes of this Plan, a Participant
shall be deemed to be "totally disabled" and thus to have terminated employment
with the Corporation at such time as he is considered to be totally and
permanently disabled under, and thereby first entitled to and receives a payment
under the long-term disability insurance ("LTD") program maintained by the
Corporation, or if no such LTD program is then in effect or the Participant is
not eligible for benefits thereunder, then ninety (90) days following such date
as the Corporation determines that the Participant initially became totally and
permanently disabled.
ARTICLE V
---------
TRUST FUND
----------
The Corporation has established a trust fund pursuant to an agreement with
Wachovia Bank of North Carolina, N.A., as trustee (the "Trustee"), dated May 22,
1992 (the "Trust Agreement"). Any payments to a Participant from such trust
fund shall, to the extent thereof, discharge the Corporation's obligations
pursuant to this Plan.
-5-
<PAGE>
ARTICLE VI
----------
AMENDMENT AND TERMINATION
-------------------------
Puritan-Bennett Corporation reserves the right, at any time, by action of its
Board of Directors, to modify or amend, in whole or in part, any or all
provisions of the Plan, including specifically the right to make any such
amendment effective retroactively. Any such amendment may have the effect of
stopping or delaying Contributions to the Plan even though the Participant has
already elected to make such Contributions. Any such amendment may also revise
the method of determining Account Balances, including revisions to the Annual
Crediting Rate. No amendment may, however, have the effect of reducing any
Account Balance in existence as of the end of the month preceding the date of
the amendment. Puritan-Bennett Corporation may, by action of its Board of
Directors, terminate or partially terminate the Plan at any time. Puritan-
Bennett Corporation also reserves the right, by action of its Board of
Directors, to amend or terminate the Plan in a manner that results in
distribution of any Account Balances prior to the time any Participant has
elected to receive such Account Balance. Puritan-Bennett Corporation may,
however, by action of its Board of Directors, choose in its discretion to make
payment of the amount credited to any Participant's Account Balance at the time
elected for distribution by such Participant, notwithstanding an amendment or
termination of the Plan.
ARTICLE VII
-----------
MISCELLANEOUS PROVISIONS
------------------------
SECTION 7.01 NON-GUARANTY OF EMPLOYMENT. Nothing contained in this Plan
shall be deemed to give any Participant the right to be retained in the service
of the Corporation or to interfere with the right of the Corporation to
discharge any Participant at any time regardless of the effect which such
discharge shall have upon such individual as a Participant in the Plan.
SECTION 7.02 GOVERNING LAW. This Plan shall be construed in accordance with
the laws of the State of Kansas.
SECTION 7.03 FACILITY OF PAYMENT. In making any distribution to or for the
benefit of any minor or incompetent Participant or beneficiary, the Corporation,
in its sole, absolute and uncontrolled discretion may, but need not, order the
Trustee to make (subject to the terms of the Trust Agreement), or itself make
such distribution to a legal or natural guardian of such minor or incompetent
and any such guardian shall have full authority and discretion to expend such
distribution for the use and benefit of such minor or incompetent and the
receipt of such guardian shall be a complete discharge to the Trustee and the
Corporation without any responsibility on their part to see the application
thereof.
SECTION 7.04 TEXT OF PLAN DOCUMENT CONTROLS. Titles of articles and
sections in this Plan are inserted for convenience of reference only and in the
event of any conflict, the text of this instrument, rather than such titles,
shall control.
SECTION 7.05 NON-GENDER CLAUSE. Any word herein used in the masculine shall
read and be construed in the feminine wherever they would so apply. Words in
the singular shall be read and construed as though used in the plural in all
cases where they would so apply.
-6-
<PAGE>
SECTION 7.06 PLAN INTERPRETATION. The Corporation shall have sole and
absolute discretion and authority to interpret all provisions of this Plan and
to resolve all questions arising under this Plan; including, but not limited to,
determining whether any person is eligible to contribute to this Plan, whether
any person shall receive any payments pursuant to this Plan, and the amount of
any payments to be paid pursuant to this Plan. Any interpretation, resolution
or determination of the Corporation pursuant to this Section shall be final and
binding upon all concerned.
IN WITNESS WHEREOF, the Corporation has executed this restated Plan,
effective as of the 1 day of September, 1993.
Attest: PURITAN-BENNETT CORPORATION
By: /s/ Derl S. Treff By: /s/ Lee Robbins
---------------------- -----------------------------------
Title: Treasurer Title: Vice President and Chief Financial Officer
------------------- -------------------------------------------
Date: September 13, 1993
-----------------------------------------
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<PAGE>
EXHIBIT 10(h)
PROMISSORY NOTE
$325,000 June 21, 1993
FOR VALUE RECEIVED, UPON DEMAND, the undersigned promises to pay to PURITAN-
BENNETT CORPORATION, a Delaware Corporation, or order at 9401 Indian Creek
Parkway, Overland Park, Kansas, or at such other place as the holder hereof may
from time to time designate in writing, the principal sum of $325,000.00 without
interest thereon until the first to occur of the following events:
1. Sales of real property located at 140 Forest Street, Wellesley Hills,
MA 02181; or
2. Alexander R. Rankin ceases to be employed by PURITAN-BENNETT CORPORATION.
Thereafter, at a rate of 1% in excess of the Prime Rate in effect on the date
hereinabove written. As used herein, the term "Prime Rate" shall mean the prime
commercial lending rate of interest announced by Commerce Bank at its office in
Kansas City, Missouri. Interest shall be paid semiannually beginning six months
from the date of the first to occur event hereinabove described.
Any amounts not paid when due shall bear interest after default at the maximum
rate allowed by law per annum. It is agreed that should this note be placed in
the hands of an attorney for collection, the makers hereunder shall pay in
addition to the principal and interest due all costs of collection and a
reasonable attorney's fee. The makers hereby waive notice of nonpayment,
protest, notice of protest and any or all lack of diligence or delays in
collection which may occur.
PAID IN FULL THIS AUGUST 10, 1993
/s/ Alexander R. Rankin
-----------------------
ALEXANDER R. RANKIN
PURITAN-BENNETT CORPORATION
/s/ Suzanne D.Rankin
--------------------
SUZANNE D. RANKIN
By /s/ Derl S. Treff
-----------------
Derl S. Treff, Treasurer
<PAGE>
EXHIBIT 10(j)
INDEMNIFICATION AGREEMENT
This Agreement is entered into as of ______________, 19____ ("Agreement"),
by PURITAN-BENNETT CORPORATION, a Delaware corporation ("Company"), and
("Indemnitee").
WHEREAS, in recognition of Indemnitee's need for substantial protection
against personal liability in order to enhance Indemnitee's continued service to
the Company in an effective manner and Indemnitee's reliance on the provisions
of the By-laws requiring indemnification of the Indemnitee under certain
circumstances, and in part to provide Indemnitee with specific contractual
assurance that the protection promised by such By-laws will be available to
Indemnitee (regardless of, among other things, any amendment to or revocation of
such By-laws or any change in the composition the Company's Board of Directors
or acquisition transaction relating to the Company), the Company wishes to
provide in this Agreement for the indemnification of and the advancing of
expenses to Indemnitee to the full extent (whether partial or complete)
permitted by law and as set forth in this Agreement.
NOW THEREFORE, in consideration of the premises and of Indemnitee agreeing
to serve or continuing to serve the Company directly or, at its request, with
another enterprise, and intending to be legally bound hereby, the parties agree
as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
1.01 "Board" means the Board of Directors of the Company.
1.02 "Corporate Status" means the position of a person as a director,
officer, employee, agent or fiduciary of the Company or of any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise at the request of the Company and shall include without limitation
any position which imposes duties on, or involves services by, such person with
respect to an employee benefit plan, its participants or beneficiaries.
1.03 "Disinterested Director" means a director of the Company who is not
and was not a party to the Proceeding in respect of which indemnification is
sought by Indemnitee.
1.04 "Effective Date" means ________________, 19___.
1.05 "Expenses" means all reasonable attorneys' fees, retainers, court
costs, printing and binding costs, telephone charges, postage, delivery service
fees, and other disbursements or expenses customarily incurred in connection
with defending, preparing to defend, investigating, or being or preparing to be
a witness in a Proceeding.
<PAGE>
1.06 "Independent Counsel" means a law firm, or a member of a law firm,
that is experienced in matters of corporation law and neither presently is, nor
in the past five years has been, retained to represent either (i) the Company or
Indemnitee in any matter material to either party or (ii) any other party to the
Proceeding giving rise to a claim for indemnification hereunder. The term
"Independent Counsel" shall not include any person who, under the applicable
standard of professional conduct then prevailing, would have a conflict of
interest in representing either the Company or Indemnitee in an action to
determine Indemnitee's rights under this Agreement.
1.07 "Proceeding" means any action, suit, arbitration, alternate dispute
resolution mechanism, investigation, administrative hearing or any other
proceeding whether civil, criminal, administrative or investigative, except one
(a) initiated by Indemnitee, unless the Board of Directors consents, or (b)
pending on or before the Effective Date.
ARTICLE II
SERVICES BY INDEMNITEE, NOTICE OF PROCEEDINGS
2.01 Services. Indemnitee agrees to serve as a director of the Company.
Nothing contained in this Agreement shall entitle or obligate Indemnitee to
continue in Indemnitee's present position with the Company or any future
position with the Company to which Indemnitee may be appointed or elected.
2.02 Notice of Proceeding. Indemnitee agrees promptly to notify the
Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any Proceeding
which may be subject to indemnification or advancement of Expenses covered
hereunder.
ARTICLE III
INDEMNIFICATION
3.01 In General. The Company shall indemnify and advance Expenses to
Indemnitee (a) as provided in this Agreement and (b) to the fullest extent
permitted by applicable law if the Indemnitee acted in good faith and in a
manner Indemnitee reasonably believed to be in or not opposed to the best
interests of the Company and, with respect to any criminal proceeding, had no
reasonable cause to believe the conduct was unlawful.
3.02 Proceeding Other Than Proceedings by or in the Right of the Company.
Indemnitee shall be entitled to the rights of indemnification provided in this
Section 3.02 if, by reason of Indemnitee's Corporate Status, Indemnitee is, or
is threatened to be, made a party to any threatened, pending or completed
Proceeding, other than a Proceeding by or in the right of the Company. Under
this Section 3.02, Indemnitee shall be indemnified against Expenses, judgments,
penalties, fines and amounts paid in
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<PAGE>
settlement actually and reasonably incurred by Indemnitee or on Indemnitee's
behalf in connection with such Proceeding or any claim, issue or matter therein,
if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed
to be in or not opposed to the best interests of the Company and, with respect
to any criminal Proceeding, had no reasonable cause to believe this conduct was
unlawful.
3.03 Proceedings by or in the Right of the Company. Indemnitee shall be
entitled to the rights of indemnification provided in this Section 3.03 if, by
reason of Indemnitee's Corporate Status, Indemnitee is, or is threatened to be,
made a party to any threatened, pending or completed Proceeding, brought by or
in the right of the Company to procure a judgment in its favor. Subject to the
next two sentences, Indemnitee shall be indemnified against Expenses, judgments,
penalties, and amounts paid in settlement actually and reasonably incurred by
Indemnitee or on Indemnitee's behalf in connection with such Proceeding or any
claim, issue or matter therein, if Indemnitee acted in good faith and in a
manner Indemnitee reasonably believed to be in or not opposed to the best
interest of the Company. No indemnification of Expenses shall be made in
respect to any claim, issue or matter in such Proceeding as to which Indemnitee
shall have been adjudged to be liable to the Company unless the Court of
Chancery of the State of Delaware, or the court in which such Proceeding shall
have been brought or is pending, determines such indemnification is proper. No
indemnification of judgments, penalties and amounts paid in settlement shall be
made in respect of any claim, issue or matter in such Proceeding unless the
Court of Chancery of the State of Delaware, or the court in which such
Proceeding shall have been brought or is pending, determines such
indemnification is proper.
3.04 Indemnification for Expenses of a Party Who is Wholly or Partly
Successful. Notwithstanding any other provision of this Agreement, to the
extent that Indemnitee is, by reason of Indemnitee's Corporate Status, a party
to and is successful on the merits or otherwise in any Proceeding or any claim,
issue or matter therein, Indemnitee shall be indemnified against all Expenses
actually and reasonably incurred by Indemnitee or on Indemnitee's behalf in
connection therewith. If Indemnitee is not wholly successful in such Proceeding
but is successful on the merits or otherwise as to one or more but less than all
claims, issues or matters in such Proceeding, the Company shall indemnify
Indemnitee against all Expenses actually and reasonably incurred by Indemnitee
or on Indemnitee's behalf in connection with each successfully resolved claim,
issue or matter. For purposes of this Section 3.04, the termination of any
claim, issue or matter in such a Proceeding by dismissal, with or without
prejudice, shall be deemed to be a successful result as to such claim, issue or
matter.
3.05 Indemnification for Expenses of a Witness. Notwithstanding any other
provision of this Agreement, to the extent that Indemnitee is, by reason of
Indemnitee's Corporate Status, a witness in any Proceeding to which Indemnitee
is not a party, Indemnitee shall be indemnified against all Expenses
-3-
<PAGE>
actually and reasonably incurred by Indemnitee or on Indemnitee's behalf in
connection therewith.
ARTICLE IV
EXCLUSIONS
The Company shall not be liable to make any payment hereunder (whether in
the nature of indemnification, advancement of Expenses or contribution)
(a) if it shall be finally adjudicated that such payment is prohibited by
law; or
(b) on account of any claim brought under Section 16(c) of the Securities
Exchange Act of 1934 in which judgment is rendered against the
Indemnitee for an accounting for profits made from the purchase or
sale by Indemnitee of the securities of the Company; or
(c) for Expenses in any claim brought by Indemnitee against the Company
unless
(1) the claim is brought as a claim for indemnity under Section 8.05
hereof or otherwise,
(2) the Indemnitee is successful in whole or in part in the claim for
which Expenses are claimed or (3) the indemnification for
Expenses is included in a settlement of the claim or is awarded
by a court; or
(d) to the extent payment is actually made to Indemnitee under a valid,
enforceable and collectible insurance policy provided by the Company,
by or out of a fund created by the Company and under the control of a
trustee or otherwise or from other sources provided by the Company.
ARTICLE V
ADVANCEMENT OF EXPENSES
The Company shall advance all reasonable Expenses which, by reason of
Indemnitee's Corporate Status, were incurred by or on Indemnitee's behalf in
connection with any threatened, pending or completed Proceeding within 20 days
after receipt by the Company of (a) a statement or statements from Indemnitee
requesting such advance or advances, whether before or after final disposition
of such Proceeding and (b) an undertaking by or on behalf of Indemnitee to repay
any Expenses advanced if it shall ultimately be determined that Indemnitee is
not entitled to be indemnified against such Expenses. All statements shall
reasonably evidence the Expenses incurred by Indemnitee. Any advance and any
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<PAGE>
undertaking to repay advances under this Article shall be unsecured and interest
free.
ARTICLE VI
PROCEDURES FOR DETERMINATION
OF ENTITLEMENT TO INDEMNIFICATION
6.01 Initial Request. To obtain indemnification under this Agreement,
Indemnitee shall submit to the Company a written request, including such
documentation and information as is reasonably available to Indemnitee and is
reasonably necessary to determine whether and to what extent Indemnitee is
entitled to indemnification. The Secretary of the Company shall, promptly upon
receipt of such a request for indemnification, advise the Board in writing that
Indemnitee has requested indemnification.
6.02 Method of Determination. A determination (if required by applicable
law) with respect to Indemnitee's entitlement to indemnification shall be made
in the specific case (a) by the Board by a majority vote of a quorum consisting
of Disinterested Directors, (b) if a quorum of the Board consisting of
Disinterested Directors is not obtainable or, even if obtainable, if such quorum
of Disinterested Directors so directs, by Independent Counsel in a written
opinion to the Board, a copy of which shall be delivered to Indemnitee, or (c)
by the stockholders of the Company.
6.03 Selection, Payment and Discharge of Independent Counsel. If the
determination of entitlement to indemnification is to be made by Independent
Counsel under Section 6.02 of this Agreement, the Independent Counsel shall be
selected by the Board, and the Company shall give written notice to Indemnitee
advising Indemnitee of the identity of the Independent Counsel so selected. The
Company shall pay any and all reasonable fees and expenses of Independent
Counsel incurred by such Independent Counsel in connection with acting pursuant
to the Agreement. Independent Counsel shall be discharged and relieved of any
further responsibility in such capacity, subject to the applicable standards of
professional conduct then prevailing.
6.04 Cooperation. Indemnitee shall cooperate with the person, persons or
entity making the determination with respect to Indemnitee's entitlement to
indemnification, including providing to such person, persons or entity any
documentation or information which is not privileged or otherwise protected from
disclosure and which is reasonably available to Indemnitee and reasonably
necessary to such determination. All reasonable costs or expenses, including
attorneys' fees and disbursements, incurred by Indemnitee in so cooperating with
the person, persons or entity making such determination shall be borne by the
Company, irrespective of the determination as to Indemnitee's entitlement to
indemnification.
6.05 Payment. If it is determined that Indemnitee is entitled to
indemnification, payment to Indemnitee shall be made within 10 days after such
determination.
-5-
<PAGE>
ARTICLE VII
PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS
7.01 Burden of Proof. In making a determination with respect to
entitlement to indemnification hereunder, the person, persons or entity making
such determination shall presume that Indemnitee is entitled to indemnification
under this Agreement, and the Company shall have the burden of proof to overcome
that presumption in connection with the making by any person, persons or entity
of any determination contrary to that presumption.
7.02 Effect of Other Proceedings. The termination of any Proceeding, or
of any claim, issue or matter herein, by judgment, order, settlement or
conviction, or upon a plea of nolo contendere or its equivalent, shall not
(except as provided in Section 3.03 of this Agreement) of itself adversely
affect the right of Indemnitee to indemnification or create a presumption that
Indemnitee did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the Company and, with
respect to any criminal Proceeding, had reasonable cause to believe that the
conduct was unlawful.
ARTICLE VIII
REMEDIES OF INDEMNITEE
8.01 Application. This Article shall apply in the event of a Dispute.
For purposes of this Article, "Dispute" shall mean any of the following events:
(a) a determination under Article VI that Indemnitee is not entitled to
indemnification;
(b) failure to make timely advancement of Expenses under Article V;
(c) failure to make the determination as to entitlement to indemnification
under Section 6.02 by the later of (i) 90 days after receipt by the
Company of the request for indemnification and (ii) 90 days after the
final disposition of a Proceeding.
(d) failure to make payment of indemnification under Sections 3.04 or 3.05
within 10 days after receipt by the Company of a written request
therefor, accompanied by appropriate supporting documentation; or
(e) failure to make payment of indemnification within 10 days after a
determination has been made that Indemnitee is entitled to
indemnification.
8.02 Adjudication. In the event of a Dispute, Indemnitee shall been
entitled to an adjudication in an appropriate court of the State of Delaware, or
in any other court of competent jurisdiction,
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<PAGE>
of Indemnitee's entitlement to such indemnification or advancement of Expenses.
Alternatively, Indemnitee, at Indemnitee's option, may seek an award in
arbitration to be conducted by a single arbitrator under the Commercial
Arbitration Rules of the American Arbitration Association. Indemnitee shall
commence any action under this agreement seeking an adjudication or an award in
arbitration within 180 days following the date on which Indemnitee first has the
right to commence such action under this Section 8.02.
8.03 De Novo Review. If a determination is made under Article VI that
Indemnitee is not entitled to indemnification, any adjudication or arbitration
commenced under this Article shall be conducted in all respects as a de novo
trial, or arbitration, on the merits and Indemnitee shall not be prejudiced by
reason of that adverse determination. In any such adjudication or arbitration,
the Company shall have the burden of proving that Indemnitee is not entitled to
indemnification.
8.04 Company Bound. If a determination is made under Article VI that
Indemnitee is entitled to indemnification, the Company shall be bound by such
determination in any adjudication or arbitration absent (a) a misstatement by
Indemnitee of a material fact, or an omission of a material fact necessary to
make Indemnitee's statement not materially misleading, in connection with the
request for indemnification or the furnishing of information under Section 6.04,
or (b) a prohibition of such indemnification under applicable law.
8.05 Expenses of Adjudication. If, in accordance with this Article,
Indemnitee seeks an adjudication or an award in arbitration to enforce
Indemnitee's rights under, or to recover damages for breach of, this Agreement,
Indemnitee shall be entitled to recover from the Company any and all expenses
(of the types described in the definition of Expenses in Section 1.05) actually
and reasonably incurred by Indemnitee in such adjudication or arbitration, but
only if Indemnitee prevails therein. If it shall be determined in such
adjudication or arbitration that Indemnitee is entitled to receive part but not
all of the indemnification or advancement of expenses sought, the Indemnitee
shall be entitled to recover expenses from the Company on a pro rata basis.
ARTICLE IX
NOTIFICATION AND DEFENSE OF CLAIM
Promptly after receipt by Indemnitee of notice of the commencement of any
action, or suit or proceeding, Indemnitee will, if a Claim in respect thereof is
to be made against the Company under this Agreement, notify the Company of the
commencement thereof; but the omission so to notify the Company will not relieve
it from any liability which it may have to Indemnitee otherwise than under this
Agreement. With respect to any such action, suit or proceeding as to which
Indemnitee notifies the Company of the commencement thereof:
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<PAGE>
(a) the Company will be entitled to participate therein at its own expense;
and
(b) except as otherwise provided below, to the extent that it may wish,
the Company jointly with any other indemnifying party similarly
notified will be entitled to assume the defense thereof, with counsel
satisfactory to Indemnitee. After notice from the Company to
Indemnitee of its election to assume the defense thereof, the Company
will not be liable to Indemnitee under this Agreement for any legal or
other expenses subsequently incurred by Indemnitee in connection with
the defense thereof other than reasonable costs of investigation or as
otherwise provided below. Indemnitee shall have the right to employ
its counsel in such action, suit or proceeding, but the fees and
expenses of such counsel incurred after notice from the Company of its
assumption of the defense thereof shall be at the expense of
Indemnitee unless (i) the employment of counsel by Indemnitee has been
authorized by the Company, (ii) Indemnitee shall have reasonably
concluded that there may be a conflict of interest between the Company
and the Indemnitee in the conduct of the defense of such action or
(iii) the Company shall not in fact have employed counsel to assume
the defense of such action, in each of which cases the fees and
expenses of counsel shall be at the expense of the Company. The
Company shall not be entitled to assume the defense of any action,
suit or proceeding brought by or on behalf of the Company or as to
which the Indemnitee shall have made the conclusion provided for in
(ii) above.
(c) the Company shall not be liable to indemnify the Indemnitee under this
Agreement for any amounts paid in settlement of any action or claim
effected without its written consent. The Company shall not settle
any action or claim in any manner which would impose any penalty or
limitation on the Indemnitee without the Indemnitee's written consent.
Neither the Company nor the Indemnitee will unreasonably withhold
their consent to any proposed settlement.
ARTICLE X
NON-EXCLUSIVITY, SUBROGATION
10.01 Non-Exclusivity. The rights of indemnification and to receive
advancement of Expenses provided by this Agreement shall not be deemed exclusive
of any other rights to which Indemnitee may at any time be entitled under
applicable law, the certificate of incorporation or By-laws of any corporation,
and other agreement, a vote of stockholders, a resolution of directors or
otherwise. No amendment, alteration, rescission or replacement of this
Agreement or any provision hereof shall be effective as to Indemnitee with
respect to any action taken or omitted by such Indemnitee in
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<PAGE>
Indemnitee's Corporate Status before such amendment, alteration, rescission or
replacement.
10.02 Subrogation. In the event of any payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee who shall execute all papers required and take all
action necessary to secure such rights, including execution of such documents as
are necessary to enable the Company to bring suit to enforce such rights.
10.03 No Duplicative Payment. The Company shall not be liable under this
Agreement to make payment of amounts otherwise indemnifiable hereunder if and to
the extent that Indemnitee has otherwise actually received such payment under
any insurance policy, contract, agreement or otherwise.
ARTICLE XI
GENERAL PROVISIONS
11.01 Employee Benefit Plans. References to "fines" in this Agreement
shall include without limitation any excise taxes assessed on Indemnitee with
respect to any employee benefit plan. An Indemnitee who acted in good faith and
in a manner Indemnitee reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed to
have acted in a manner "not opposed to the best interests of the Company" under
this Agreement.
11.02 Successors and Assigns. This Agreement shall be binding upon the
Company and its successors and assigns and shall inure to the benefit of
Indemnitee and Indemnitee's heirs, executors and administrators.
11.03 Severability. If any provision or provisions of this Agreement
shall be held to be invalid, illegal or unenforceable for any reason whatsoever:
(a) the validity, legality and enforceability of the remaining provisions
of this Agreement (including without limitation each portion of any
section of this Agreement containing any such provision held to be
invalid, illegal or unenforceable that is not itself invalid, illegal
or unenforceable) shall not in any way be affected or impaired
thereby; and
(b) to the fullest extent possible, the remaining provisions of this
Agreement (including, without limitation, each portion of any section
of this Agreement containing any such provision held to be invalid,
illegal or unenforceable) shall be construed so as to give effect to
the intent manifested by the entire Agreement.
-9-
<PAGE>
11.04 No Adequate Remedy. The parties acknowledge that it is impossible
to measure in money the damages which will accrue to either party by reason of a
failure to perform any of the obligations under this Agreement. Therefore, if
either party shall institute any action or proceeding to enforce the provisions
hereof, the party against whom such action or proceeding is brought hereby
waives the claim or defense that the party bringing such action has an adequate
remedy at law, and the party against whom the action is brought shall not urge
in any such action or proceeding the claim or defense that the other party has
an adequate remedy at law.
11.05 Execution in Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be considered an original and all of
which together shall constitute one Agreement.
11.06 Headings. The headings in this Agreement are for convenience of
reference only and shall not affect its interpretation or construction.
11.07 Waiver. A party shall not be deemed to have waived a right or
remedy provided in or relating to this Agreement unless the waiver is in writing
and duly executed by the party.
11.08 Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if (i)
delivered by hand and receipted for by the party to whom said notice or other
communication shall have been directed or (ii) mailed by certified or registered
mail with postage prepaid, on the third business day after the date on which it
is so mailed:
If to Indemnitee to: _____________________________
_____________________________
_____________________________
_____________________________
If to Company: Puritan-Bennett Corporation
9401 Indian Creek Parkway
Building 40
P.O. Box 25905
Overland Park, Kansas 66225-5905
Attn: Corporate Secretary
or to such other address as may have been furnished to Indemnitee by the
Company,or to the Company by Indemnitee, as the case may be.
11.09 Governing Law. The law of Delaware shall govern the validity,
interpretation, construction and effect of this Agreement.
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<PAGE>
11.10 Entire Agreement. This Agreement, as to its subject matter,
exclusively and completely states the rights and duties of all parties, sets
forth their entire understanding and merges all prior and contemporaneous
representations, promises, proposals, discussions and understanding by or
between the parties. It may be amended only by another written agreement duly
executed by the parties.
Each of the parties has therefore caused this Agreement to be executed on
its (or his or her) behalf.
PURITAN-BENNETT CORPORATION
By _______________________________
Title ____________________________
Attest:
By _________________________
INDEMNITEE
----------------------------------
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<PAGE>
EXHIBIT 11
STATEMENT REGARDING COMPUTATION
OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
QUARTER ENDING YEAR ENDING
JANUARY 31 JANUARY 31
-------------------------------- -------------------------------
1994 1993 1994 1993
-------------------------------- -------------------------------
<S> <C> <C> <C> <C>
PRIMARY
Weighted average shares outstanding
at end of period 12,080,319 11,898,031 11,955,957 11,812,298
Assuming exercise of options reduced
by the number of shares which could
have been purchased with the proceeds
from exercise (285,197) 241,548 (161,998) 258,785
-------------------------------- -------------------------------
Shares outstanding for computation of
per share earnings 11,795,122 12,139,579 11,793,959 12,071,083
================================ ===============================
Net income ($29,548,000) $ 3,534,000 ($34,669,000) $14,595,000
================================ ===============================
Primary earnings per share ($2.51) $0.29 ($2.94) $1.21
================================ ===============================
FULLY DILUTED
Weighted average shares outstanding
at end of period 12,080,319 11,898,031 11,955,957 11,812,298
Assuming exercise of options reduced by
the number of shares which could
have been purchased with the proceeds
from exercise (90,333) 257,418 (89,259) 258,785
-------------------------------- -------------------------------
Shares outstanding for computation of
per share earnings 11,989,986 12,155,449 11,866,698 12,071,083
================================ ===============================
Net income ($29,548,000) $ 3,534,000 ($34,669,000) $14,595,000
================================ ===============================
Fully diluted earnings per share ($2.46) $0.29 ($2.92) $1.21
================================ ===============================
REPORTED EARNINGS PER SHARE ($2.47) $0.30 ($2.90) $1.24
================================ ===============================
</TABLE>
The company does not meet the 3% dilution test contained in Accounting
Principles Board Opinion #15, therefore disclosure of diluted earnings
per share on the face of the condensed consolidated statements of
operations is not required.
<PAGE>
EXHIBIT 13
PURITAN-BENNETT CORPORATION AND SUBSIDIARIES
FINANCIAL
REPORT
FISCAL YEAR 1994
Incoming Orders, Net Sales and Net Income (Loss) Per Share.................. 21
Ten-Year Summary............................................................ 22
Management's Responsibility for Financial Statements........................ 24
Report of Independent Auditors.............................................. 24
Consolidated Balance Sheets................................................. 25
Consolidated Statements of Operations....................................... 26
Consolidated Statements of Stockholders' Equity............................. 27
Consolidated Statements of Cash Flows....................................... 28
Notes to Consolidated Financial Statements.................................. 29
Supplemental Information for the Ten-Year Summary........................... 41
Management's Discussion and Analysis of Results of
Operations and Financial Condition........................................ 42
<TABLE>
<CAPTION>
Incoming Orders, Net Sales ($ Millions) and Net Income (Loss) Per Share
- - ---------------------------------------------------------------------------------------------------------------
FY 1993 FY 1994
------------------------------------- -------------------------------------
Apr. 30 July 31 Oct. 31 Jan. 31 APR. 30 JULY 31 OCT. 31 JAN. 31
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MEDICAL -- Orders $66.6 $67.9 $68.9 $75.7 $65.4 $75.6 $69.9 $ 85.0
Net Sales 64.0 67.4 70.3 73.2 69.4 71.9 69.6 75.0
AERO -- Orders 6.3 6.8 5.9 5.1 5.6 7.0 5.1 10.4
Net Sales 6.5 6.0 6.3 6.4 6.0 6.0 5.7 5.7
TOTAL -- Orders $72.9 $74.7 $74.8 $80.8 $71.0 $82.6 $75.0 $ 95.4
Net Sales 70.5 73.4 76.6 79.6 75.4 77.9 75.3 80.7
BACKLOG INCREASE
(DECREASE) $ 2.4 $ 1.3 $(1.8) $ 1.2 $(4.4) $ 4.7 $(0.3) $ 14.7
NET INCOME (LOSS) BEFORE
CUMULATIVE EFFECT
PER SHARE $ .29 $ .32 $ .33 $ .30 $ .15 $(.41) $ .06 $(2.46)
CUMULATIVE EFFECT OF
ACCOUNTING CHANGES
PER SHARE $ -- $ -- $ -- $ -- $(.23) $ -- $ -- $ (.01)
NET INCOME (LOSS) PER SHARE $ .29 $ .32 $ .33 $ .30 $(.08) $(.41) $ .06 $(2.47)
- - ---------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
TEN-YEAR SUMMARY
Puritan-Bennett Corporation and Subsidiaries
All dollar amounts in thousands, except common share data
<TABLE>
<CAPTION>
Transition
1994 1993 Period 1991
- - -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING RESULTS
Net Sales
Puritan Group $172,438 146,420 9,833 116,994
Bennett Group 113,399 128,442 7,901 112,314
Aero Systems 23,418 25,198 1,948 26,814
Industrial Division -- -- -- --
-------- -------- -------- --------
Total Net Sales 309,255 300,060 19,682 256,122
Gross Profit 128,671 130,152 7,153 100,340
Selling and Administrative Expense 95,756 83,178 6,326 75,763
Research and Development Expense 24,887 25,849 2,361 24,137
Restructuring Charges 43,169 -- -- --
-------- -------- -------- --------
Operating Profit (Loss) (35,141) 21,125 (1,534) 440
Other Income (Expense) (4,017) (2,718) (639) (3,162)
-------- -------- -------- --------
Income (Loss) Before Income Taxes (39,158) 18,407 (2,173) (2,722)
Income Tax Provision (Benefit) (7,379) 3,812 118 (3,296)
-------- -------- -------- --------
Net Income (Loss) Before
Cumulative Effect (31,779) 14,595 (2,291) 574
Cumulative Effect of
Accounting Changes (2,890) -- (3,059) --
-------- -------- -------- --------
Net Income (Loss) $(34,669) 14,595 (5,350) 574
======== ======== ======== ========
Pro Forma Effect Assuming Accounting
Change is Applied Retroactively* $ -- -- (2,291) (1,059)
======== ======== ======== ========
- - -------------------------------------------------------------------------------
FINANCIAL STATISTICS
Gross Profit 41.6% 43.4 36.3 39.2
Effective Tax Rate --% 20.7 -- --
Net Income --% 4.9 -- 0.2
Long-Term Debt to Total Capital 26.4% 24.3 22.9 22.2
Return on Average Stockholders' Equity --% 11.7 -- 0.5
Return on Average Assets --% 6.5 -- 0.3
Current Ratio 1.6 2.8 2.8 2.8
Average Asset Turnover 1.2 1.3 -- 1.3
- - -------------------------------------------------------------------------------
COMMON SHARE DATA
Net Income (Loss) Before
Cumulative Effect $ (2.66) 1.24 (0.20) 0.05
Cumulative Effect of
Accounting Changes $ (.24) -- (0.26) --
Net Income (Loss) $ (2.90) 1.24 (0.46) 0.05
Pro Forma Effect Assuming Accounting
Change is Applied Retroactively* $ -- -- (0.20) (0.09)
Dividends Declared $ .12 0.12 -- 0.12
Net Book Value $ 8.67 11.23 9.91 10.35
Weighted-Average Shares Outstanding 11,956 11,812 11,633 11,617
- - -------------------------------------------------------------------------------
OTHER DATA
Net Working Capital $ 51,882 81,086 68,534 70,847
Long-Term Debt $ 38,656 42,840 34,510 34,510
Stockholders' Equity $107,712 133,723 115,920 120,929
Capital Expenditures $ 15,727 22,882 -- 26,545
Total Assets $256,594 244,408 206,331 208,788
- - -------------------------------------------------------------------------------
</TABLE>
See page 41 for the supplemental information for the ten-year summary.
22
<PAGE>
<TABLE>
<CAPTION>
1990 1989 1988 1987 1986 1985 1984
- - --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
100,993 86,178 77,043 69,272 64,558 49,803 44,558
120,268 110,892 107,240 86,433 67,553 58,948 55,232
30,615 29,724 20,117 17,026 17,607 13,283 13,458
-- -- -- -- -- 1,961 5,479
- - ------- -------- ------- ------- ------- ------- -------
251,876 226,794 204,400 172,731 149,718 123,995 118,727
113,062 104,348 91,572 79,863 63,675 49,846 43,002
69,831 63,873 60,544 50,637 44,633 38,143 40,042
19,682 15,238 13,327 9,681 7,367 5,763 5,600
-- -- -- -- -- -- --
- - ------- -------- ------- ------- ------- ------- -------
23,549 25,237 17,701 19,545 11,675 5,940 (2,640)
(334) (850) 3,876 (161) 7,217 1,325 (4,911)
- - ------- -------- ------- ------- ------- ------- -------
23,215 24,387 21,577 19,384 18,892 7,265 (7,551)
7,342 8,389 7,438 8,297 7,952 2,337 (3,053)
- - ------- -------- ------- ------- ------- ------- -------
15,873 15,998 14,139 11,087 10,940 4,928 (4,498)
-- -- -- -- -- -- --
- - ------- -------- ------- ------- ------- ------- -------
15,873 15,998 14,139 11,087 10,940 4,928 (4,498)
======= ======== ======= ======= ======= ======= =======
14,447 15,998 14,139 11,087 10,940 4,928 (4,498)
======= ======== ======= ======= ======= ======= =======
- - --------------------------------------------------------------------------------
44.9 46.0 44.8 46.2 42.5 40.2 36.2
31.6 34.4 34.5 42.8 42.1 32.2 --
6.3 7.1 6.9 6.4 7.3 4.0 --
22.9 17.4 20.7 8.1 10.3 2.4 12.7
14.6 17.4 18.4 17.4 18.0 8.2 --
8.9 10.5 11.1 10.5 11.7 5.3 --
3.8 3.1 3.3 2.3 2.4 2.7 2.5
1.4 1.5 1.6 1.6 1.6 1.3 1.2
- - --------------------------------------------------------------------------------
1.39 1.42 1.27 1.00 0.99 0.40 (0.38)
-- -- -- -- -- -- --
1.39 1.42 1.27 1.00 0.99 0.40 (0.38)
1.26 1.42 1.27 1.00 0.99 0.40 (0.38)
0.12 0.11 0.11 0.11 0.10 0.10 0.10
10.20 8.82 7.48 6.26 5.30 4.98 4.66
11,451 11,297 11,168 11,057 11,087 12,470 11,957
- - --------------------------------------------------------------------------------
81,405 64,308 60,309 40,997 37,841 34,896 35,867
34,926 21,121 21,883 6,100 6,723 1,577 8,330
117,368 100,432 83,921 69,476 58,234 63,030 57,418
24,928 12,401 19,046 13,098 6,757 5,049 5,297
193,157 163,549 140,886 114,533 97,300 90,508 94,491
- - --------------------------------------------------------------------------------
</TABLE>
*Reflects transition period change in accounting for deferred compensation.
23
<PAGE>
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
Puritan-Bennett Corporation and Subsidiaries
The consolidated financial statements and related footnotes on the following
pages have been prepared in conformity with generally accepted accounting
principles. The integrity and objectivity of data in these consolidated
financial statements, including estimates in judgments relating to matters not
concluded by year-end, are the primary responsibility of management. Financial
information included elsewhere in this Annual Report is consistent with the
consolidated financial statements. The opinion of Ernst & Young, the company's
independent auditors, on the consolidated financial statements is included
herein.
Puritan-Bennett Corporation and subsidiaries maintain internal accounting
control systems designed to provide reasonable assurance that assets are
safeguarded, that transactions are executed in accordance with management's
authorization and are properly recorded and that accounting records are adequate
for preparation of financial statements and other financial information. The
systems are tested and evaluated regularly by the company's internal auditors as
well as by the independent auditors in connection with their annual audit. The
design, monitoring and revision of internal accounting control systems involve,
among other things, management's judgment with respect to the relative costs and
expected benefits of specific control measures.
The adequacy of the company's internal financial controls and the accounting
principles employed in financial reporting are under the general surveillance of
the Audit Committee of the Board of Directors, consisting of two outside
directors. The independent auditors and corporate internal auditors meet
periodically with the committee to discuss accounting, auditing and financial
reporting matters. The committee also recommends to the directors the
designation and fees of the independent auditors. The independent auditors have
direct access to the Audit Committee, with or without the presence of management
representatives, to discuss the scope and results of their audit work and their
comments on the adequacy of internal accounting controls and the quality of
financial reporting.
/s/ Burton A. Dole Jr. /s/ Lee A. Robbins
Burton A. Dole Jr. Lee A. Robbins
Chairman, President and Vice President, Chief Financial
Chief Executive Officer Officer and Controller
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Puritan-Bennett Corporation
We have audited the accompanying consolidated balance sheets of Puritan-
Bennett Corporation and subsidiaries as of January 31, 1994 and 1993 and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years ended January 31, 1994 and 1993 and December 31, 1991 and
for the one-month transition period ended January 31, 1992. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Puritan-Bennett
Corporation and subsidiaries at January 31, 1994 and 1993 and the consolidated
results of their operations and their cash flows for the years ended January 31,
1994 and 1993 and December 31, 1991 and for the one-month transition period
ended January 31, 1992, in conformity with generally accepted accounting
principles.
As discussed in Notes 6 and 7 to the consolidated financial statements,
during the year ended January 31, 1994, the company changed its method of
accounting for income taxes, postretirement benefits and postemployment
benefits. Also as discussed in Note 6 to the consolidated financial statements,
in the one-month transition period ended January 31, 1992, the company changed
its method of accounting for deferred compensation.
Kansas City, Missouri /s/ Ernst & Young
March 7, 1994
24
<PAGE>
CONSOLIDATED BALANCE SHEETS
Puritan-Bennett Corporation and Subsidiaries
Dollars in thousands, except per share data
<TABLE>
<CAPTION>
January 31
1994 1993
---------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 713 $ 403
Trade notes and accounts receivable, less allowance for doubtful accounts
(1994--$1,761; 1993--$646) 70,137 67,781
Inventories 47,470 48,115
Prepaid expenses and other 5,567 3,726
Income taxes receivable -- 482
Deferred income tax benefits 10,760 6,913
-------- --------
Total Current Assets 134,647 127,420
Plant and Equipment, Net 88,893 89,962
Other Assets:
Patents--at cost, less accumulated amortization (1994--$762; 1993--$2,006) 1,682 10,244
Cost in excess of amounts assigned to net assets of businesses acquired, less
accumulated amortization (1994--$1,677; 1993--$1,005) 24,355 3,007
Other assets 7,017 13,775
-------- --------
Total Other Assets 33,054 27,026
-------- --------
Total Assets $256,594 $244,408
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 27,791 $ 7,901
Trade accounts payable 13,937 14,511
Employee compensation, payroll taxes and withholdings 8,015 7,672
Accrued self-insurance expenses 1,299 805
Other accrued expenses 21,140 8,363
Dividends payable 359 357
Income taxes payable 3,678 --
Current maturities of long-term debt 6,546 6,725
-------- --------
Total Current Liabilities 82,765 46,334
Long-Term Debt, less current maturities 38,656 42,840
Deferred Compensation and Pensions 17,444 14,901
Deferred Income Taxes 55 1,079
Deferred Revenue 9,962 5,531
Commitments and Contingencies
Stockholders' Equity:
Common stock, par value $1.00 per share--authorized 30,000,000 shares; issued
and outstanding, 12,427,653 shares in 1994 and 11,902,761 shares in 1993 12,428 11,903
Additional paid-in capital 34,794 24,787
Retained earnings 61,736 97,543
Deferred stock awards (602) (510)
Treasury stock, 36,809 shares (644) --
-------- --------
Total Stockholders' Equity 107,712 133,723
-------- --------
Total Liabilities and Stockholders' Equity $256,594 $244,408
======== ========
</TABLE>
See notes to consolidated financial statements
25
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
Puritan-Bennett Corporation and Subsidiaries
Dollars in thousands, except per share data
<TABLE>
<CAPTION>
Year Ended Transition Year Ended
January 31 Period December 31
1994 1993 Note 2 1991
----------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $309,255 $300,060 $19,682 $256,122
Cost of Goods Sold 180,584 169,908 12,529 155,782
---------- ---------- ---------- ----------
Gross Profit 128,671 130,152 7,153 100,340
Selling and Administrative Expense 95,756 83,178 6,326 75,763
Research and Development Expense 24,887 25,849 2,361 24,137
Restructuring Charges 43,169 -- -- --
---------- ---------- ---------- ----------
Operating Profit (Loss) (35,141) 21,125 (1,534) 440
Other Income (Expense)
Interest income 477 572 58 446
Interest expense (4,565) (3,720) (316) (2,064)
Early retirement benefits -- -- -- (1,948)
Miscellaneous, net 71 430 (381) 404
---------- ---------- ---------- ----------
Total Other Income (Expense) (4,017) (2,718) (639) (3,162)
---------- ---------- ---------- ----------
Income (Loss) Before Income Taxes
and Cumulative Effect (39,158) 18,407 (2,173) (2,722)
Provision for (Benefit from) Income Taxes (7,379) 3,812 118 (3,296)
---------- ---------- ---------- ----------
Net Income (Loss) Before Cumulative Effect (31,779) 14,595 (2,291) 574
Cumulative Effect of Accounting Changes
(Net of Income Taxes) (2,890) -- (3,059) --
---------- ---------- ---------- ----------
Net Income (Loss) $(34,669) $ 14,595 $(5,350) $ 574
========== ========== ========== ==========
Net Income (Loss) Before Cumulative Effect
Per Common Share $ (2.66) $ 1.24 $ (.20) $ .05
Cumulative Effect of Accounting Changes
Per Common Share (Net of Income Taxes) (.24) -- (.26) --
---------- ---------- ---------- ----------
Net Income (Loss) Per Common Share $ (2.90) $ 1.24 $ (.46) $ .05
========== ========== ========== ==========
Pro Forma Amounts Assuming the Effect
of the Change in Accounting for Deferred
Compensation is Applied Retroactively:
Net Income (Loss) $ -- $ -- $(2,291) $ (1,059)
========== ========== ========== ==========
Net Income (Loss) Per Common Share $ -- $ -- $ (.20) $ (.09)
========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements
26
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Puritan-Bennett Corporation and Subsidiaries
Dollars in thousands, except per share data
<TABLE>
<CAPTION>
Additional Deferred
Common Stock Paid-In Retained Stock Treasury
Shares Par Value Capital Earnings Awards Stock
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1991 11,508,657 $11,509 $16,382 $ 90,540 $(1,063) $ --
Net income -- -- -- 574 -- --
Dividends declared, $.12 per share -- -- -- (1,397) -- --
Stock awards canceled (678) (1) (17) -- 18 --
Stock awards granted 7,700 8 200 -- (208) --
Amortization of deferred stock awards -- -- -- -- 426 --
Stock options exercised 111,775 112 1,645 -- -- --
Shares received and retired upon exercise
of stock options (5,770) (6) (140) -- -- --
Shares issued to employee benefit plans 58,111 58 1,396 -- -- --
Tax benefit related to stock options -- -- 893 -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Balances at December 31, 1991 11,679,795 11,680 20,359 89,717 (827) --
Net loss -- -- -- (5,350) -- --
Amortization of deferred stock awards -- -- -- -- 36 --
Stock options exercised 11,000 11 113 -- -- --
Shares received and retired upon exercise
of stock options (878) (1) (20) -- -- --
Shares issued to employee benefit plans 6,851 7 156 -- -- --
Tax benefit related to stock options -- -- 39 -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Balances at January 31, 1992 11,696,768 11,697 20,647 84,367 (791) --
Net income -- -- -- 14,595 -- --
Dividends declared, $.12 per share -- -- -- (1,419) -- --
Stock awards canceled (4,368) (4) (92) -- 96 --
Stock awards granted 9,560 9 264 -- (273) --
Amortization of deferred stock awards -- -- -- -- 458 --
Stock options exercised 152,274 152 2,071 -- -- --
Shares received and retired upon exercise
of stock options (11,938) (12) (383) -- -- --
Shares issued to employee benefit plans 60,465 61 1,629 -- -- --
Tax benefit related to stock options -- -- 651 -- -- --
---------- ---------- ---------- ---------- ---------- ----------
BALANCES AT JANUARY 31, 1993 11,902,761 11,903 24,787 97,543 (510) --
NET LOSS -- -- -- (34,669) -- --
DIVIDENDS DECLARED, $.12 PER SHARE -- -- -- (1,432) -- --
STOCK AWARDS CANCELED (3,643) (3) (79) -- 82 --
STOCK AWARDS GRANTED 22,300 22 434 -- (456) --
AMORTIZATION OF DEFERRED STOCK AWARDS -- -- -- -- 282 --
STOCK OPTIONS EXERCISED 23,087 23 202 -- -- --
SHARES RECEIVED AND RETIRED UPON EXERCISE
OF STOCK OPTIONS (2,209) (2) (43) -- -- --
SHARES ISSUED TO EMPLOYEE BENEFIT PLANS 58,428 58 1,275 -- -- 1,984
SHARES ISSUED IN BUSINESS ACQUISITION 426,929 427 8,218 -- -- --
SHARES REPURCHASED -- -- -- -- -- (2,628)
UNREALIZED HOLDING GAIN ON AVAILABLE-FOR-SALE
SECURITY, NET OF INCOME TAXES OF $187 -- -- -- 294 -- --
---------- ---------- ---------- ---------- ---------- ----------
BALANCES AT JANUARY 31, 1994 12,427,653 $12,428 $34,794 $ 61,736 $ (602) $ (644)
========== ========== ========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements
27
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Puritan-Bennett Corporation and Subsidiaries
Dollars in thousands
<TABLE>
<CAPTION>
Year Ended Transition Year Ended
January 31 Period December 31
1994 1993 Note 2 1991
----------------------------------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(34,669) $ 14,595 $(5,350) $ 574
Adjustments to reconcile net income to net cash and
cash equivalents provided by operating activities:
Depreciation and amortization 15,440 12,884 1,067 11,450
Deferred income tax provision (benefit) (12,057) 1,652 176 (4,867)
Cumulative effect of changes in
accounting principles 2,890 -- -- --
Restructuring charges 38,404 -- -- --
Deferred compensation and pensions 2,536 473 3,277 3,162
Provision for losses on accounts receivable 929 449 29 323
Loss (gain) on disposition of assets 265 (27) 8 267
Shares issued to employee benefit plans 3,317 1,690 163 1,454
Change in assets and liabilities not affecting cash and
cash equivalents:
Trade notes and accounts receivable (423) (16,332) 1,282 965
Inventories 153 (4,042) (1,054) 4,695
Prepaid expenses and other 520 (598) 24 (668)
Other assets 1,714 (3,948) (121) (1,746)
Trade accounts payable and accrued expenses (4,021) 5,908 (1,707) 4,787
Income taxes payable/receivable 4,003 1,623 (146) (2,583)
Deferred revenue 3,991 2,472 410 2,649
-------- -------- ------- --------
Net Cash and Cash Equivalents Provided by (Used in)
Operating Activities 22,992 16,799 (1,942) 20,462
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of capital assets 1,362 726 11 822
Capital expenditures (15,727) (22,882) (1,554) (26,545)
Purchases of intangible assets (547) (1,902) (89) (733)
Acquisitions, net of cash acquired (17,617) (1,500) -- --
-------- -------- ------- --------
Net Cash and Cash Equivalents Used in Investing
Activities (32,529) (25,558) (1,632) (26,456)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance (repayment) of notes payable 19,890 (4,099) 1,200 6,500
Additions to long-term debt 515 15,000 -- --
Payments on long-term debt (6,680) (418) (1) (721)
Dividends paid to stockholders (1,430) (1,062) (350) (1,392)
Stock options exercised 225 2,223 124 1,757
Stock repurchased (2,673) (395) (21) (146)
-------- -------- ------- --------
Net Cash and Cash Equivalents Provided by
Financing Activities 9,847 11,249 952 5,998
-------- -------- ------- --------
Net Increase (Decrease) in Cash and Cash Equivalents 310 2,490 (2,622) 4
Cash and Cash Equivalents at Beginning of Period 403 (2,087) 535 531
-------- -------- ------- --------
Cash and Cash Equivalents at End of Period $ 713 $ 403 $(2,087) $ 535
======== ======== ======= ========
</TABLE>
See notes to consolidated financial statements
28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Puritan-Bennett Corporation and Subsidiaries January 31, 1994
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS: The company's operations consist predominantly of the design,
manufacture and distribution of specialized equipment for emergency, therapeutic
and surgical pulmonary care. In addition, the company manufactures and
distributes gas products administered with this equipment. These products are
distributed to hospitals, home care providers, clinics, physicians, nursing
homes, airlines and airframe manufacturers.
REVENUE RECOGNITION: Revenue from product sales is principally recognized at
the time of shipment. Deferred revenue relates to extended warranty agreements
offered by the company which are amortized over the life of the agreement with
the related warranty costs charged to expense as incurred.
TRANSLATION OF FOREIGN CURRENCIES: Assets and liabilities of the company's
foreign operations are translated at year-end or historical rates; income and
expenses are translated at the weighted average exchange rates for the year.
Foreign currency gains and losses resulting from transactions are included in
consolidated operations.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of the company and its subsidiaries, substantially all of which are
wholly-owned. All significant intercompany accounts, transactions and profits
have been eliminated.
INVENTORIES: Inventories are stated at the lower of cost or market. The Last
In, First Out (LIFO) method was used for determining the cost of approximately
75% of total inventories. The cost for the remaining portion of the inventories
was determined using the First In, First Out (FIFO) method.
PLANT AND EQUIPMENT: Plant and equipment are recorded at cost. Provisions for
depreciation and amortization of all fixed assets including capitalized leases
are computed using the straight-line method.
OTHER ASSETS: The cost of patents is being amortized on a straight-line basis
over their approximate useful lives, not to exceed seventeen years. The costs in
excess of amounts assigned to net assets of businesses acquired are being
amortized on a straight-line basis over periods ranging from fifteen to forty
years. Other assets include unamortized capitalized software development costs
of $947,000 and $1,230,000 at January 31, 1994 and 1993, respectively. These
costs are being amortized using the straight-line method over a five-year
period. Amortization expense related to software development costs for 1994,
1993 and 1991 was $495,000, $514,000 and $533,000, respectively.
INCOME TAXES: The company plans to continue to finance foreign expansion and
operating requirements by reinvestment of undistributed earnings of its foreign
subsidiaries and, accordingly, has not provided for United States federal income
taxes on such earnings. At January 31, 1994, the amount of undistributed
earnings considered to be indefinitely reinvested was approximately $30,000,000.
As discussed below, the company changed its method of accounting for income
taxes effective February 1, 1993.
NET INCOME PER COMMON SHARE: Net income per common share is based on the
weighted-average number of shares outstanding during each year. The potential
dilutive effect of stock options is not material.
STATEMENTS OF CASH FLOWS: The company considers all highly-liquid investments
purchased within three months of maturity to be cash equivalents.
INVESTMENTS: The company determines the appropriate classification of
securities at the time of purchase and re-evaluates such designation as of each
balance sheet date. Available-for-sale securities are stated at fair value and
the related unrealized gains and losses, net of tax, are recognized in
stockholders' equity.
FINANCIAL INSTRUMENTS: Financial instruments consist primarily of cash and
cash equivalents, trade notes and accounts receivable and notes and trade
accounts payable, all of which are stated at amounts which approximate fair
value except for long-term debt which has an estimated fair value of
approximately $48,000,000.
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Puritan-Bennett Corporation and Subsidiaries
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES (CONT)
ACCOUNTING CHANGES: During 1994 the company changed its methods of accounting
for income taxes to conform with Statement of Financial Accounting Standards
(SFAS) No. 109 "Accounting for Income Taxes" (see Note 7). On January 31, 1994,
the company changed its method of accounting for postemployment benefits,
retroactive to February 1, 1993, to conform with SFAS No. 112 "Employers'
Accounting for Postemployment Benefits" (see Note 6). The financial statements
for the one-month transition period ended January 31, 1992, were restated for
the cumulative effect of a change in accounting for deferred compensation (see
Note 2). The cumulative effect of these changes were as follows:
<TABLE>
<CAPTION>
Year Ended Transition Year Ended
January 31 Period December 31
1994 1993 Note 2 1991
(Dollars in thousands)
<S> <C> <C> <C> <C>
Income taxes ($.23
per share) $(2,755) $ - $ - $ -
Postemployment
benefits, net of taxes
of $31 ($.01 per share) (135) - - -
Deferred compensation
($.26 per share) - - (3,059) -
------- ------ ------- ------
$(2,890) $ - $(3,059) $ -
======= ====== ======= ======
</TABLE>
Effective February 1, 1993 the company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" using the
prospective basis which amortizes the unrecognized net liability on a straight
line basis over 20 years. SFAS No. 106 requires accrual of the expected cost of
providing postretirement benefits to employees and their dependents or
beneficiaries during the years employees earn benefits. Prior to adoption,
postretirement benefit expenses were recognized on a pay-as-you-go basis. The
adoption of SFAS No. 106 did not materially affect earnings.
NOTE 2: CHANGE IN FISCAL YEAR
FISCAL YEAR: The company changed its year end from a calendar year ended
December 31 to a fiscal year ended January 31, effective for the fiscal period
ended January 31, 1992. The Consolidated Statement of Operations and the
Consolidated Statement of Cash Flows for the one month period ended January 31,
1992 (Transition Period), are presented in the financial statements. For
comparative purposes, the Condensed Consolidated Statement of Operations
(Unaudited) and the Condensed Consolidated Statement of Cash Flows (Unaudited)
for the one month period ended January 31, 1991, are as follows:
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) One Month Period
Dollars in thousands, except per share data Ended January 31
1991
----------------
<S> <C>
Net Sales $ 13,901
Cost of Goods Sold 8,697
-----------
Gross Profit 5,204
Selling and Administrative Expense 4,665
Research and Development Expense 1,541
-----------
Operating Loss (1,002)
Other Expense, net (24)
-----------
Loss Before Income Taxes (1,026)
Benefit From Income Taxes (287)
-----------
Net Loss $ (739)
===========
Weighted Average Number of Shares Outstanding 11,512,991
===========
Net Loss Per Share $ (.06)
===========
</TABLE>
30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT)
NOTE 2: CHANGE IN FISCAL YEAR (CONT)
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) One Month Period
Dollars in thousands Ended January 31
1991
----------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES $(3,683)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of capital assets 68
Capital expenditures (2,898)
Purchases of intangible assets (11)
-------
Net Cash and Cash Equivalents Used in Investing Activities (2,841)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of notes payable 3,800
Additions to long-term debt 848
Stock options exercised 54
-------
Net Cash and Cash Equivalents Provided by Financing Activities 4,702
-------
Net Decrease in Cash and Cash Equivalents (1,822)
Cash and Cash Equivalents at Beginning of Month 531
-------
Cash and Cash Equivalents at End of Month $(1,291)
=======
</TABLE>
As a result of the change in fiscal year end, no current book or tax benefit
was realized from the net operating loss sustained during the month ended
January 31, 1992, as described further in Note 7. The transition period includes
$834,000 of insurance expense related primarily to previously incurred workers
compensation claims and $3,059,000 for the cumulative effect of a change in
accounting for deferred compensation.
<TABLE>
<CAPTION>
NOTE 3: INVENTORIES
Inventories consist of: 1994 1993
(Dollars in thousands)
--------------------------
<S> <C> <C>
Finished goods $16,163 $16,666
Work in process 4,437 4,924
Raw materials and supplies 30,894 30,227
------- -------
51,494 51,817
Excess of FIFO cost over LIFO cost (4,024) (3,702)
------- -------
Total Inventories $47,470 $48,115
======= =======
</TABLE>
During December of 1991, the company recorded inventory reserves of
$2,587,000 for excess and obsolete inventory. During the years ended January 31,
1993 and December 31, 1991, the company had a liquidation of LIFO inventories
that increased income before taxes by $487,000 and $604,000, respectively.
During the year ended January 31, 1994, the effect of such liquidations is not
significant.
31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT)
NOTE 4: PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
Plant and equipment consist of: 1994 1993
(Dollars in thousands)
----------------------
<S> <C> <C>
Land and land improvements $ 9,971 $ 9,966
Buildings 31,355 30,966
Machinery and equipment 113,328 111,578
Leasehold improvements 4,307 5,014
-------- --------
158,961 157,524
Less accumulated depreciation and amortization 70,068 67,562
-------- --------
Total Plant and Equipment, Net $ 88,893 $ 89,962
======== ========
</TABLE>
During 1993, the company increased the estimated useful life of its computer
equipment from three to five years to more closely reflect replacement patterns.
The effects of this change in accounting estimate were to decrease 1993
depreciation expense by approximately $1,072,000 and increase 1993 net income by
approximately $654,000, or $.06 per share.
NOTE 5: NOTES PAYABLE
Notes payable consist primarily of bank lines of credit. Unsecured bank lines
of credit allow the company to borrow a maximum of $35,000,000 (at the quoted
rate of each bank). There are no withdrawal restrictions on any cash balances
maintained at the various banks. The lines of credit can be withdrawn at each
bank's option. The following information relates to bank line-of-credit
borrowings:
<TABLE>
<CAPTION>
1994 1993 1991
(Dollars in thousands)
---------------------------
<S> <C> <C> <C>
Bank lines of credit outstanding
at the end of the period $27,600 $ 7,200 $10,800
Weighted-average interest rate at year-end 3.5% 3.5% 5.9%
Maximum amount outstanding during the period 27,700 24,100 18,400
Average amount outstanding during the period 12,085 16,252 9,436
Weighted-average interest rate during the period 3.5% 4.1% 6.5%
</TABLE>
The average amounts outstanding and weighted-average interest rates during
each year are calculated based on daily outstanding balances.
NOTE 6: EMPLOYEE BENEFITS
DEFINED BENEFIT PLANS: The company and its subsidiaries have noncontributory,
defined benefit pension plans covering substantially all full-time employees in
the U.S., Canada and Ireland. The company contributes amounts necessary to
satisfy the minimum funding requirements of the Employee Retirement Income
Security Act of 1974 for the U.S. plan. Amounts necessary to satisfy the funding
requirements of Regulation 63 of the Ontario Pension Benefits Act, 1987 are
contributed by the company for the Canada plan. The funding policy for the
Ireland plan is determined by the company and is consistent with standard
practices in that country. Contributions for the Ireland plan are made by both
the company and the participants. The U.S. and Canada defined benefit pension
plans provide retirement benefits based upon the employees' average earnings and
years of service. The Ireland plan provides benefits equal to a certain
percentage of the participant's final salary. The company also has an unfunded
supplemental retirement plan covering certain key employees which provides
supplemental retirement benefits based upon average earnings. A summary of the
components of net cost for the defined benefit plans follows:
<TABLE>
<CAPTION>
Pension Supplemental
1994 1993 1991 1994 1993 1991
DEFINED BENEFIT PLANS: (Dollars in thousands)
------------------------ ----------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost--benefits
earned during the period $ 1,832 $ 1,488 $ 1,520 $ 25 $ 13 $ 92
Interest cost on projected
benefit obligation 3,615 3,224 2,700 268 293 263
Actual return on plan assets (615) (2,885) (6,460) - - -
Net amortization and
deferral (3,494) (1,057) 3,005 104 132 132
------- ------- ------- ----- ----- -----
Net Cost $ 1,338 $ 770 $ 765 $ 397 $ 438 $ 487
======= ======= ======= ===== ===== =====
</TABLE>
32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT)
NOTE 6: EMPLOYEE BENEFITS (CONT)
Assumptions used in determining the net cost for the defined benefit plans
were:
<TABLE>
<CAPTION>
Pension Supplemental
1994 1993 1991 1994 1993 1991
----------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Weighted-average discount rate 8.75% 8.75% 8.75% 8.50% 8.50% 8.50%
Rate of increase in compensation
levels 6.00% 6.00% 6.00% 6.00% 6.00% 6.00%
Expected long-term rate of
return on assets 10.00% 10.00% 10.00% 10.00% 10.00% 10.00%
</TABLE>
The following table sets forth the funded status and amounts recognized in
the consolidated balance sheets at January 31, 1994 and 1993 for the company's
defined benefit plans:
<TABLE>
<CAPTION>
Pension Supplemental
1994 1993 1994 1993
ACTUARIAL PRESENT VALUE OF BENEFIT OBLIGATIONS: (Dollars in thousands)
---------------- --------------
<S> <C> <C> <C> <C>
Vested Benefit Obligation $37,851 $29,680 $3,406 $2,907
======= ======= ====== ======
Accumulated Benefit Obligation $39,004 $30,586 $3,406 $2,907
======= ======= ====== ======
Projected benefit obligation $48,003 $39,000 $3,009 $3,715
Plan assets at fair value 37,721 37,729 - -
------- ------- ------ ------
Projected benefit obligation
in excess of plan assets 10,282 1,271 3,009 3,715
Unrecognized net gain (loss) (4,459) 3,469 267 (630)
Unrecognized net asset (liability) 2,436 2,372 (676) (808)
------- ------- ------ ------
Net Liability Recognized in the
Consolidated Balance Sheet $ 8,259 $ 7,112 $2,600 $2,277
======= ======= ====== ======
</TABLE>
For the U.S. defined benefit plans, the weighted-average discount rate and
rate of increase in future compensation levels used in determining the actuarial
present value of the projected benefit obligation were 7.5% and 4.5%,
respectively, for 1994 and 8.75% and 6.00%, respectively, for 1993. The assumed
long-term rate of return on assets was 10% for 1994 and 1993.
The weighted-average discount rate, rate of increase in future compensation
levels and expected long-term rate of return on assets for the Canada plan were
7.5%, 5.0% and 9.0%, respectively for 1994. The rates remained unchanged for the
Ireland plan. The foreign defined benefit pension plans were not material in
1993 and 1991. Accordingly, the related pension cost and actuarial present value
of accumulated plan benefits or net assets available for benefits have not been
included in prior year amounts.
The U.S. pension plan assets at January 31, 1994 and 1993, were invested in
listed stocks and bonds, including common stock of the company. The market value
of company stock included in plan assets at January 31, 1994 and 1993, was
$3,660,000 and $5,307,000, respectively. Both the Canada and Ireland plan assets
are invested in pooled mutual funds. For the unfunded supplemental plan, the
company has purchased life insurance policies intended to ultimately fund the
cost of the plan. During December of 1991, the company undertook measures to
reduce its work force through both voluntary and involuntary terminations. To
accomplish this, the company offered a limited voluntary early retirement
program for eligible employees through an amendment to its domestic pension
plan. The company incurred $1,948,000 of expense related to additional pension
and medical benefits offered under this program, as well as $369,000 of
severance costs related to other terminations.
During 1993, the company discontinued one of its foreign pension plans which
resulted in no gain or loss. All active employees in the plan became fully
vested upon discontinuance and were offered either a transfer of the current
value of their benefit to the company's defined contribution plan or the
purchase of an annuity contract. All funds were transferred to the defined
contribution plan.
33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT)
NOTE 6: EMPLOYEE BENEFITS (CONT)
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS: The company provides
postretirement health care benefits to certain eligible retirees. The cost of
the postretirement medical plan is shared by the company and retirees through
such features as annually adjusted contributions, deductibles and coinsurance.
The retiree's contribution is a factor of age and service at the time of
retirement. The postretirement health care benefits are funded by the company as
claims are paid.
A summary of the components of annual net cost for the postretirement
benefits for 1994 are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
----------------------
<S> <C>
Service cost $ 35
Interest cost 166
Amortization of unrecognized net liability 92
----
Net Cost $293
====
</TABLE>
The components of the company's postretirement benefits obligation recognized
in the consolidated balance sheet at January 31, 1994, with comparative amounts
at the date of adoption, February 1, 1993 were as follows:
Accumulated postretirement benefits obligation:
<TABLE>
<CAPTION>
January 31 February 1
1994 1993
(Dollars in thousands)
----------------------
<S> <C> <C>
Retirees $1,690 $1,556
Future retirees 579 476
------ ------
Total accumulated benefit obligation 2,269 2,032
Less unrecognized amounts:
Unrecognized net liability 1,751 1,843
Net Loss 152 -
------ ------
Net Liability Recognized in the Consolidated Balance Sheet $ 366 $ 189
====== ======
</TABLE>
For measurement purposes, an annual health care trend rate of 10% was
assumed, decreasing over five years to 6% and remaining constant thereafter. A
one percent increase in these assumed trend rates would not have a material
effect on the accumulated postretirement benefits obligation as of January 31,
1994 and February 1, 1993 and the net periodic postretirement benefits cost for
1994. The discount rate used in determining the accumulated postretirement
benefits obligation was 7.50% and 8.75% for January 31, 1994 and February 1,
1993, respectively.
The cost of providing postretirement benefits in 1993 and 1991 which was
recorded on a pay-as-you-go basis, was approximately $275,000 and $217,000,
respectively.
RETIREMENT SAVINGS AND STOCK OWNERSHIP PLAN: The company has a retirement
savings and stock ownership plan under which substantially all U.S. employees
may elect to contribute up to 20% of their earnings. This includes a basic
contribution of up to 10% and an additional voluntary contribution of up to 10%.
The company contributes an additional 35% for up to 6% of each individual's
basic contribution. Contributions are placed in trust for investment in defined
funds, including a stock fund for investment in common stock of the company. The
plan trustee purchases the company's stock at fair market value. The amount
charged to expense under this plan was $1,190,000, $1,059,000 and $879,000 in
1994, 1993 and 1991, respectively.
DEFERRED COMPENSATION PLAN: The company has a deferred compensation plan for
the benefit of certain employees. Effective January 1, 1992, the company changed
its method of accounting for deferred compensation in accordance with SFAS No.
106 which amended certain provisions of Accounting Principles Board Opinion No.
12. The cumulative effect of this change increased the net loss by $3,059,000
($.26 per share) for the period ending January 31, 1992. Due to existing net
operating loss carryforwards, no tax benefit was recognized on the cumulative
effect of this change. Deferred compensation expense was $418,000, $866,000 and
$606,000 for 1994, 1993 and 1991, respectively.
POSTEMPLOYMENT BENEFITS: In the fourth quarter of 1994, the company adopted
SFAS No. 112. Prior to adoption, postemployment benefit expenses were recognized
on a pay-as-you-go basis. The company elected to immediately recognize the
cumulative effect of the change in accounting for postemployment benefits of
$166,000 ($135,000 after taxes) which represents the unfunded accumulated
postemployment benefit obligation as of January 31, 1994.
34
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT)
NOTE 7: INCOME TAXES
The provision for (benefit from) income taxes consists of the following:
<TABLE>
<CAPTION>
Liability
Method Deferred Method
1994 1993 1991
CURRENT: (Dollars in thousands)
--------------------------
<S> <C> <C> <C>
Federal $ 1,941 $1,002 $ 521
Foreign 2,215 934 973
State and local 522 224 77
-------- ------ -------
Total Current 4,678 2,160 1,571
DEFERRED:
Federal (8,817) 247 (4,011)
Foreign (1,956) 1,294 (160)
State and local (1,284) 111 (696)
-------- ------ -------
Total Deferred (12,057) 1,652 (4,867)
-------- ------ -------
Total Provision (Benefit) $ (7,379) $3,812 $(3,296)
======== ====== =======
</TABLE>
Total income taxes paid in 1994, 1993 and 1991 were $620,000, $720,000 and
$4,220,000, respectively. As of January 31, 1994, the company had a net
operating loss carryforward of $1,668,000 for tax purposes resulting from the
transition period which will be utilized over the next four years. In addition,
the company has $5,190,000 U.S. and foreign net operating loss carryforwards, of
which $900,000 and $2,527,000 will expire in fiscal years 1999 and 2009,
respectively. The company has research and development credit carryforwards of
$1,100,000 which will also expire in fiscal year 2009.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the company's deferred tax liabilities and assets as of January 31, 1994 with
comparative amounts at the date of adoption, February 1, 1993 were as follows:
<TABLE>
<CAPTION>
January 31 February 1
1994 1993
Assets Liabilities Net Assets Liabilities Net
(Dollars in thousands)
----------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Inventory valuation $ 5,119 $ - $ 3,153 $ -
Accrued employee benefits 8,358 - 7,549 -
NOL carryforwards 3,323 - 812 -
Accelerated depreciation - 6,095 - 5,100
Deferred revenue 2,898 187 2,160 -
Research and development credit
carryforwards 1,100 - - -
Restructuring costs 10,051 - - -
Purchase accounting adjustment - - - 4,432
Other 2,294 460 1,878 2,824
------- ------ ------- ------- ------- -------
Total $33,143 $6,742 $26,401 $15,552 $12,356 $ 3,196
Less: Valuation allowance 15,696 - 15,696 4,548 - 4,548
------- ------ ------- ------- ------- -------
Total $17,447 $6,742 $10,705 $11,004 $12,356 $(1,352)
======= ====== ======= ======= ======= =======
</TABLE>
35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT)
NOTE 7: INCOME TAXES (CONT)
The components of the deferred income tax provision (benefit) for years prior
to adoption of SFAS No. 109 result from the following:
<TABLE>
<CAPTION>
1993 1991
(Dollars in thousands)
-----------------------
<S> <C> <C>
Accelerated depreciation for tax purposes $ 655 $ (111)
Timing differences in reporting the taxable portion
of Domestic International Sales Corporation income (50) (50)
Inventory valuation 381 (310)
Accrued employee benefits (374) (1,610)
Accrued costs not deductible for tax purposes until paid 2,350 (1,400)
Deferred extended warranty (1,008) (1,061)
Alternative minimum tax carryforward (396) -
Other, net 94 (325)
-------- -------
Total Deferred Income Tax Provision (Benefit) $ 1,652 $(4,867)
======== =======
</TABLE>
A reconciliation of the provision for (benefit from) income taxes to the
statutory federal rate is as follows:
<TABLE>
<CAPTION>
1994 1993 1991
(Dollars in thousands)
---------------------------------------------------------------------
Effective Effective Effective
Amount Rate Amount Rate Amount Rate
-------- --------- ------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Computed tax at statutory federal rate $(13,314) (34.0)% $ 6,259 34.0% $ (926) (34.0)%
Foreign Sales Corporation tax benefit (566) (1.4) (477) (2.6) (465) (17.2)
State taxes, net of federal tax benefit (1,900) (4.9) 221 1.2 (409) (15.0)
Nondeductible amortization and
depreciation 32 0.1 258 1.4 143 5.3
Nondeductible foreign loss - - 378 2.0 606 22.3
Research and development tax credit, net (1,813) (4.6) (509) (2.8) (969) (35.6)
Foreign statutory tax rate differences (1,490) (3.8) (2,377) (12.9) (1,339) (49.2)
Increase in valuation allowance 11,148 28.5 - - - -
Other, net 524 1.3 59 0.4 63 2.3
-------- ----- ------- ----- ------- ------
$ (7,379) (18.8)% $ 3,812 20.7% $(3,296) (121.1)%
======== ===== ======= ===== ======= ======
</TABLE>
NOTE 8: LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
1994 1993
(Dollars in thousands)
----------------------
<S> <C> <C>
Unsecured promissory notes payable--
Interest rate 9.85%, interest payable semi-annually through October 1998, principal
is payable in annual installments from October 1993 through October 1998 $15,333 $20,000
Interest rate 6.64%, interest payable semi-annually through December 1999, principal
is payable in annual installments from December 1995 through December 1999 15,000 15,000
Interest rate 9.02%, interest payable semi-annually through December 1997, principal
is payable in annual installments from December 1993 through December 1997 8,000 10,000
Variable interest rate, .96% through December 1994, interest payable annually
through December 1995, principal is payable in full in December 1995 4,510 4,510
Secured bank note payable--
Interest rate 7.95%, payable in monthly installments through
August 2003, collateralized by a building 1,662 -
Other 697 55
------- -------
45,202 49,565
Less current maturities 6,546 6,725
------- -------
Total Long-Term Debt $38,656 $42,840
======= =======
</TABLE>
36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT)
NOTE 8: LONG-TERM DEBT (CONT)
Under the terms of various long-term debt agreements, the company agreed,
among other things, to certain restrictions on consolidated working capital and
various transactions including the amount available for the payment of cash
dividends. As of January 31, 1994, under the most restrictive of these
provisions, the maximum amount available for the payment of cash dividends was
approximately $1,700,000. As of January 31, 1994, the company was not in
compliance with the current ratio provision of the unsecured promissory notes.
Waivers were obtained from the lenders through January 31, 1995.
The aggregate maturities of long-term debt during each of the next five
fiscal years are as follows: 1995--$6,546,000; 1996--$13,721,000; 1997--
$8,574,000; 1998--$7,238,000; and 1999--$5,164,000.
Capitalized interest accounts for $1,749,000 of the $3,813,000 interest cost
incurred during 1991. No amounts were capitalized during 1994 and 1993.
Interest paid on all debt in 1994, 1993 and 1991 totaled $4,694,000,
$3,391,000 and $3,812,000, respectively.
NOTE 9: STOCK OPTIONS AND AWARDS
The company has a stock option plan that provides for the purchase of the
company's common stock by officers and key employees at the fair market value of
shares at the date of grant. Stockholders approved a new stock benefit plan in
1988. This approval also allowed the termination of the 1979 plan. The 1988
Stock Benefit Plan reserved 800,000 common shares for stock options and 200,000
common shares for stock awards. During 1993, the company reserved an additional
1,000,000 common shares for stock options. At the discretion of the Compensation
Committee of the Board of Directors, the plans allow all vested stock option
holders to elect an alternative settlement method in lieu of purchasing common
stock at the exercise price. The alternative settlement method permits the
employee to receive, without payment to the company, cash, shares of common
stock or a combination thereof, of up to 100% of the value of market increase
in common stock over the option purchase price; however, alternative settlements
involving the disbursement of cash require approval of the Compensation
Committee of the Board of Directors. Options are granted for terms of ten years
to become exercisable in 50% installments as of the first and second anniversary
dates from the date of grant. Under the 1979 plan, options exercisable and
outstanding at January 31, 1994 and 1993, were 125,225 and 149,612,
respectively. During 1994, 20,887 options from the 1979 plan were exercised at
prices ranging from $4.50 to $19.13 per share. Options exercisable at January
31, 1994 and 1993, under the 1988 plan were 467,090 and 308,081, respectively.
<TABLE>
<CAPTION>
Number of Shares
---------------------------------------
1988 OPTION PLAN: Reserved Granted Available
-------- ------- ---------
<S> <C> <C> <C>
Balance at January 31, 1992 721,668 548,768 172,900
Reserved 1,000,000 - 1,000,000
Exercised ($13.50 to $27.00 per share) (72,799) (72,799) -
Granted ($25.50 to $30.25 per share) - 170,100 (170,100)
Lapsed - (7,025) 7,025
--------- ------- ---------
Balance at January 31, 1993 1,648,869 639,044 1,009,825
Exercised ($16.50 to $21.75 per share) (2,200) (2,200) -
Granted ($17.50 to $22.75 per share) - 213,500 (213,500)
Lapsed - (17,600) 17,600
--------- ------- ---------
Balance at January 31, 1994 1,646,669 832,744 813,925
========= ======= =========
</TABLE>
37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT)
NOTE 9: STOCK OPTIONS AND AWARDS (CONT)
Under the stock award plan, shares are granted to employees at no cost.
Awards vest at the rate of 25% annually, commencing one year from the date of
award, provided the recipient is still employed by the company on the vesting
date. The cost of stock awards, based on the fair market value at the date of
grant, is being charged to expense over the four-year vesting period ($280,000
in 1994, $458,000 in 1993 and $427,000 in 1991).
<TABLE>
<CAPTION>
Number of Shares
-----------------------------
1988 AWARD PLAN: Reserved Granted Available
-------- ------- ---------
<S> <C> <C> <C>
Balance at January 31, 1992 164,772 42,351 122,421
Granted -- 9,560 (9,560)
Vested (19,560) (19,560) --
Canceled -- (4,368) 4,368
------- ------- -------
Balance at January 31, 1993 145,212 27,983 117,229
Granted -- 22,300 (22,300)
Vested (3,690) (3,690) --
Canceled -- (3,643) 3,643
------- ------- -------
Balance at January 31, 1994 141,522 42,950 98,572
======= ======= =======
</TABLE>
NOTE 10: OPERATING LEASES
OPERATING LEASES: Total rental expense for operating leases, principally
buildings, amounted to approximately $6,781,000, $6,118,000 and $7,429,000 for
1994, 1993 and 1991, respectively. Some of the operating leases have options to
renew and there are no contingent rentals or financial restrictions in any of
the operating leases. Future minimum lease payments on all noncancelable leases
are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
----------------------
<S> <C>
1995 $ 2,459
1996 2,336
1997 2,023
1998 1,852
1999 1,034
Thereafter 1,956
-------
Total minimum lease payments $11,660
=======
</TABLE>
NOTE 11: COMMITMENTS AND CONTINGENCIES
Certain claims, suits and complaints arising in the ordinary course of
business have been filed or are pending against the company and certain of its
subsidiaries. While it is not feasible to predict the outcome of these suits and
other legal proceedings and claims with certainty, management is of the opinion
that their ultimate disposition should not have a material effect on the
consolidated financial statements of the company.
During 1994, the company guaranteed approximately $1.5 million of debt
related to the sale of equipment through a leasing company. The debt is
collateralized by a security agreement. Additionally, a $3.8 million sale of an
existing lease receivable guarantees performance over four years under a
conditional sales agreement.
NOTE 12: INDUSTRY SEGMENTS AND EXPORT SALES
The company's operations consist predominantly of the design, manufacture and
distribution of specialized equipment for emergency, therapeutic and surgical
pulmonary care. In addition, the company manufactures and distributes gas
products administered with this equipment. These products are distributed to
hospitals, home care providers, clinics, physicians, nursing homes, airlines and
airframe manufacturers. Net sales, operating profit (loss) and identifiable
assets of these operations account for 100% of the consolidated amounts for
1994, 1993 and 1991.
Export sales billed from domestic locations for 1994, 1993 and 1991 totaled
approximately $36,133,000, $39,914,000 and $31,913,000, respectively. These
sales were not concentrated in a specific geographic area.
38
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT)
NOTE 12: INDUSTRY SEGMENTS AND EXPORT SALES (CONT)
Income before income taxes from foreign operations accounted for $72,000,
$12,386,000 and $10,550,000 of consolidated income (loss) before income taxes in
1994, 1993 and 1991, respectively. The company recorded foreign translation
losses of $583,000 and $607,000 for 1994 and 1993, respectively, as a result of
the strengthening of the U.S. dollar.
Transfers between United States and foreign operations are recorded at
varying discounts depending on the country and the type of market. Areas
representing a significant portion of the company's foreign operations include
Europe, Canada and the Far East.
Net sales, operating profit (loss) and identifiable assets for the United
States and foreign geographic segments are summarized as follows for 1994, 1993
and 1991:
<TABLE>
<CAPTION>
(Dollars in thousands)
------------------------------------------------------------
Transfers
Sales to Between Operating
Unaffiliated Geographic Profit Identifiable
Customers Areas Total (Loss) Assets
------------ ---------- -------- --------- ------------
<S> <C> <C> <C> <C> <C>
1994:
United States $258,686 $ 11,829 $270,515 $(35,374) $170,605
Foreign 50,569 25,472 76,041 233 85,989
Eliminations -- (37,301) (37,301) -- --
-------- -------- -------- -------- --------
Consolidated $309,255 $ -- $309,255 $(35,141) $256,594
======== ======== ======== ======== ========
1993:
United States $245,789 $ 30,348 $276,137 $ 8,537 $191,469
Foreign 54,271 11,619 65,890 12,588 52,939
Eliminations -- (41,967) (41,967) -- --
-------- -------- -------- -------- --------
Consolidated $300,060 $ -- $300,060 $ 21,125 $244,408
======== ======== ======== ======== ========
1991:
United States $214,428 $ 34,381 $248,809 $ (6,256) $185,440
Foreign 41,694 10,846 52,540 6,696 23,348
Eliminations -- (45,227) (45,227) -- --
-------- -------- -------- -------- --------
Consolidated $256,122 $ -- $256,122 $ 440 $208,788
======== ======== ======== ======== ========
</TABLE>
NOTE 13: STOCKHOLDERS' EQUITY
In May 1989, the company declared a dividend of one common share purchase
right on each outstanding share of common stock. One right is issued with each
share of common stock issued after May 17, 1989. The rights are neither
presently exercisable nor separable from the common stock. If they become
exercisable following the occurrence of certain specified events, each right
will entitle the holder to purchase one-half share of common stock for $45,
subject to certain antidilution adjustments. The rights do not have any voting
privileges nor are they entitled to dividends. The rights are redeemable by the
company at $.01 each until a person or group acquires 20% of the company's
common stock or until they expire on May 1, 1999. In the event that the company
is acquired in a merger or other business combination transaction or 50% or more
of its assets or earning power is sold, provision shall be made so that each
holder of a right shall have the right to receive, upon exercise thereof at the
then current exercise price, that number of shares of common stock of the
surviving company which at the time of such transaction would have a market
value of two times the exercise price of the right. At January 31, 1994, 6.5
million shares were reserved for future issuance in accordance with the above
plan.
39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT)
NOTE 14: WARRANTY RESERVES
During December of 1991, the company provided $2,999,000 of warranty reserves
related principally to the company's 7200 Series ventilator. These warranty
reserves represent the estimated costs of field corrective actions associated
primarily with the medical device safety alert for the 7200 Series ventilator
announced by the company in January 1992.
NOTE 15: RESTRUCTURING CHARGES
During 1994, the company recorded restructuring charges of $43,169,000.
Included in the charges are restructuring actions taken during the second
quarter (approximately $9,014,000) principally made up of severance costs
related to an employment level reduction in the company's ventilator and blood
gas monitoring divisions; the closing of its facilities in El Segundo,
California; the consolidation of its facilities including offices in its
aviation business, blood gas monitoring operations and sales and service
operations in France and the U.S. and a revaluation of certain production
assets. Fourth quarter charges (approximately $34,155,000) were principally made
up of severance costs and the write-down of assets in connection with the
closing of the portable ventilator facility in Boulder, Colorado and the
curtailment of the intra-arterial blood gas monitoring operation in Carlsbad,
California. Portable ventilators will continue to be sold to customers outside
the U.S.; manufacturing will be transferred to the company's facility in the
Republic of Ireland. A buyer for the intra-arterial blood gas monitoring product
line is currently being sought. The company expects to obtain a buyer or close
the facility around midyear. The expected costs for this period, which represent
an effective and orderly completion of the stated restructuring plan, have been
accrued.
As of January 31, 1994, approximately $12,000,000 remained in accrued
liabilities representing primarily expected severance, cancellation penalties,
remaining facility lease payments and other costs necessary to complete the
restructuring plan. This amount is expected to be disbursed primarily over the
first three quarters of fiscal year 1995.
NOTE 16: ACQUISITIONS
During April 1993, the company acquired a German distributor (Hoyer
Medizintechnik) for $10,550,000, of which $2,000,000 remains to be paid in
fiscal year 1995. The company also acquired a French supplier of diagnostic and
therapeutic sleep products (SEFAM S.A.) in late January 1994, for a total of
$21,592,000 of which $12,947,000 was paid in cash with the remainder paid
through the issuance of 426,929 restricted shares of the company's common stock.
These acquisitions were accounted for using the purchase method of accounting,
and the purchase price has been allocated to assets acquired and liabilities
assumed, reflecting their estimated fair value as of the dates of the
acquisitions with the remaining excess purchase price to be amortized over
fifteen years. The results of operations of the acquired businesses, which are
not significant, have been included in the accompanying statements of
operations, stockholders' equity and cash flows since the dates of acquisition.
In conjunction with these acquisitions, the purchase price consisted of the
following:
<TABLE>
<CAPTION>
(Dollars in thousands)
----------------------
<S> <C>
Fair value of assets acquired other than
cash and cash equivalents $34,481
Liabilities assumed or incurred (6,464)
Stock issued (8,645)
Prior year cash payment (1,500)
Assets contributed (255)
-------
Fair value of assets acquired, net of cash
and cash equivalents acquired $17,617
=======
</TABLE>
40
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT)
NOTE 17: SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of unaudited quarterly results of operations for
the years ended January 31, 1994 and 1993:
<TABLE>
<CAPTION>
Quarter Ended
(Dollars in thousands, except per share data)
---------------------------------------------
Apr. 30 July 31 Oct. 31 Jan. 31
------- ------- ------- -------
<S> <C> <C> <C> <C>
FY 1994
Net sales $75,391 $77,914 $75,277 $ 80,673
Gross profit 33,218 33,395 31,367 30,691
Net income (loss) before cumulative effect 1,849 (4,963) 748 (29,413)
Net income (loss) (906) (4,963) 748 (29,548)
Net income (loss) before cumulative effect
per common share .15 (.41) .06 (2.46)
Net income (loss) per common share (.08) (.41) .06 (2.47)
FY 1993
Net sales $70,472 $73,471 $76,593 $ 79,524
Gross profit 30,873 32,103 33,444 33,732
Net income 3,456 3,776 3,829 3,534
Net income per common share .29 .32 .33 .30
</TABLE>
In the second quarter of 1994, a $9,014,000 restructuring charge was
recorded. In the fourth quarter, the company recorded an additional $34,155,000
of restructuring charges as discussed in Note 15.
In the fourth quarter of 1993, a $1,072,000 change in accounting estimate
related to depreciation expense was recorded as discussed in Note 4.
SUPPLEMENTAL INFORMATION FOR THE TEN-YEAR SUMMARY (UNAUDITED)
Effective January 1, 1985, the company adopted the Last-In, First-Out (LIFO)
method of determining costs for substantially all inventories.
In 1985, the Industrial Division net assets were sold at a gain of $1,854,000
which is included in other income (expense).
In 1986, the Los Angeles facility was sold at a gain of $7,286,000 which is
included in other income (expense).
In 1986, a previously-acquired product line was written off at a loss of
$1,070,000 which is included in gross profit.
In 1988, certain assets and marketing rights were sold at a gain of
$6,000,000 which is included in other income (expense).
In 1991 and 1984, the company incurred expenses of $1,948,000 and $2,758,000,
respectively, associated with limited voluntary early retirement benefit
programs.
In the transition period, the company recorded $3,059,000 of expense as a
result of a change in accounting for deferred compensation.
In 1993, the company made a change in estimate reducing depreciation expense
by $1,072,000, which is included in selling and administrative expense.
In 1994, the company recorded $43,169,000 in restructuring charges. The
cumulative effect of accounting changes includes $2,755,000 for the adoption of
SFAS No. 109 "Accounting for Income Taxes" and $135,000 for the adoption of SFAS
No. 112 "Employers' Accounting for Postemployment Benefits."
The summary should be read in conjunction with the auditors' report,
consolidated financial statements and related footnotes included on pages 24 to
41 of this report.
Prior year common share data have been adjusted for the two-for-one stock
splits that took place in 1987 and 1986.
41
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS - JANUARY 31, 1994 COMPARED TO JANUARY 31, 1993
NET SALES
Net sales volume for the year ending January 31, 1994 (FY 1994), increased
3.1% compared to the year ended January 31, 1993. The following table shows
sales volume for the significant markets in which the company operates:
<TABLE>
<CAPTION>
(Dollars in millions) Percent
1994 1993 Change
----------------------------------
<S> <C> <C> <C>
Home Care Market $109.7 $ 92.8 18.2%
Hospital/Physician Market 176.2 182.1 (3.2)%
Aviation Market 23.4 25.2 (7.1)%
------ ------
Total Net Sales $309.3 $300.1 3.1%
====== ======
</TABLE>
Home care continued its pattern of strong growth, particularly in the U.S.
market. Worldwide, the company's home care business grew over 18% reaching
nearly $110 million. In the U.S., the company's home care business grew about
34% while outside the U.S. this business declined about 14% from prior year
levels. The company does not believe the international decline represents a
trend as FY 1993 revenues included a sizable oxygen concentrator fleet
replacement by a single European customer whereas FY 1994 revenues did not. Over
the past five years, the company's home care business has achieved a compound
annual revenue growth rate of over 22% worldwide--31% internationally.
Home oxygen therapy (principally liquid oxygen systems and oxygen
concentrators) represents nearly three-quarters of the company's home care
business. The company's home oxygen therapy business grew 15% over the prior
year, in spite of that year's unusual oxygen concentrator fleet replacement by a
European customer. The company expects its home oxygen therapy business to
continue growing, more slowly in the United States but with international growth
resuming.
Worldwide, the company's sleep disorder diagnosis and treatment products
business grew more than 75% reflecting both rapid market growth and market share
gains, again principally in the United States. In late January, the company
finalized the previously announced acquisition of SEFAM S.A. (Nancy, France),
the leading European supplier of diagnostic and therapeutic sleep disorder
products. It is the company's belief that this acquisition places Puritan-
Bennett in the leading market share position in Europe and in the number two
position worldwide in what the company expects will continue to be a rapidly
growing sleep disorders market. Sleep disorder products should account for an
increasing share of the company's growing worldwide home care business.
Hospital/physician office products did not fare well last year. At
approximately $186 million, orders remained essentially unchanged from the prior
year. At approximately $176 million, revenues were down 3%. The resulting growth
in order backlog does represent future revenues and profitability, however.
Although unit orders for the 7200 Series ventilator system grew 10%
internationally in spite of recessionary economic conditions in Europe, unit
orders fell 18% in the United States. The company expects U.S. demand for the
7200 ventilator to stabilize generally around last year's levels and
international demand to continue growing. The company also expects that service
revenues associated with its growing installed base of hospital ventilators will
continue to increase, as they did last year. Finally, the company expects
revenues from its CliniVision Respiratory Care Management Information System
will continue to grow. After a very slow start caused by U.S. health care reform
uncertainty, CliniVision orders increased significantly in the second half of
the year as hospitals increasingly focused on CliniVision as a valuable solution
to their cost-containment challenge and as the company continued to enhance the
CliniVision system. Considering all of the above, the company expects the
hospital/physician market revenues to grow moderately in the year ahead. The
company has resolved to improve the profitability of this part of its business
within the context of considerably lower revenue expectations than the company
has had in the past.
The company's aviation revenues declined 7% last year but orders grew 16%
from prior year levels. This order growth mainly reflects a growing interest in
the offerings of the small Airborne Closed Circuit Television (ACCTV) operation
acquired a year ago. Of the $28 million in aviation orders received, ACCTV
accounted for nearly $3.8 million, $2.9 million of which is for the drogue-chute
deployment monitoring system on the McDonnell Douglas C-17 military air
transport. Most of ACCTV's orders last year represent future revenue. The
company believes ACCTV is on the verge of becoming a meaningful revenue and
profit contributor.
42
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (CONT)
Aviation's order improvement also reflects growing interest in other new
products. Demand for these new products is not limited by rates of new aircraft
production; these products can be used on existing aircraft. Due to such new
product offerings and the facility consolidation, the company believes its
aviation business will grow and become more profitable during the coming year.
Growth from increasing rates of new commercial and general aviation aircraft
production is probably another year or two away.
INTERNATIONAL SALES AND PROFITABILITY
The decrease in foreign operations operating profit is the result of several
events. As expected, the German operation, which was in a start-up environment,
had an operating loss of approximately $1.7 million. FY 1993 foreign operating
profit also included a sizable oxygen concentrator fleet replacement by a single
customer for which there was no comparable event in FY 1994. This accounts for
approximately $2.3 million of the decrease in foreign operating profit. In
addition, approximately $.9 million of FY 1993 operating profit related to the
manufacture of portable ventilators and manual resuscitators in Ireland. The
manufacture of this equipment was transferred back to the U.S. in FY 1994.
Approximately $3.4 million was recorded in FY 1994 related to a change in
technology transfer costs recorded by foreign operations in FY 1993, FY 1991 and
FY 1990 in accordance with the company's revised transfer pricing study. The
effect of this adjustment was to decrease the U.S. operating loss and the
foreign operating profit. The recession in Europe, which caused a reduction in
sales and an increase in bad debt expense (primarily one customer), contributed
to the majority of the remaining decrease. The following tables reflect the
amount of sales and operating profits from the United States and foreign
geographic segments:
<TABLE>
<CAPTION>
Net Sales Operating Profit (Loss)
(Dollars in millions) Percent (Dollars in millions) Percent
1994 1993 Change 1994 1993 Change
----------------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Operations $258.7 $245.8 5.2% $(35.4) $ 8.5 -
Foreign Operations 50.6 54.3 (6.8)% .3 12.6 (97.6)%
------ ------ ------ -----
Total $309.3 $300.1 3.1% $(35.1) $21.1 (266.4)%
====== ====== ====== =====
The following table reflects sales by customer
location:
Net Sales
(Dollars in millions) Percent of Sales
1994 1993 1994 1993
---------------------------------------
Customers within the U.S. $222.6 $205.9 72.0% 68.6%
Customers outside the U.S. 86.7 94.2 28.0% 31.4%
------ ------ ------ ------
Total Net Sales $309.3 $300.1 100.0% 100.0%
====== ====== ====== ======
</TABLE>
During the past decade, the company's business profile has changed
substantially from being predominately a supplier of life-support capital
equipment to the United States hospital market. Home care has been and is
expected to continue to be the fastest growing part of our 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. At the same time, the
company will consider utilizing more fully its direct hospital sales and service
organizations in the U.S., Canada, France, Germany, Italy and the United Kingdom
to handle complementary products from other companies.
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 makes wheelchair products. Over the past five years, the
company's home care business, which reached nearly $110 million in revenues this
year, 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.
43
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (CONT)
GROSS PROFIT
The gross profit percentage for FY 1994 decreased 1.8% from FY 1993. The
reduced profitability of the hospital/physician market products was the primary
contributor to this decrease. As discussed elsewhere, several factors, including
health care reform uncertainty, recessionary economic conditions in Europe and a
fire at Maimonides Medical Center in Brooklyn, New York, affected the company's
hospital/physician market. Restructuring actions were taken to improve the
profitability of this part of the business within the context of considerably
lower revenue expectations than the company has had in the past.
(Dollars in millions) Percent
1994 1993 Change
--------------------------------------
Gross Profit $128.7 $130.2 (1.2)%
Gross Profit Percentage 41.6% 43.4% (1.8)%
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses for FY 1994 increased 15.1% over FY
1993. This increase is due primarily to the German operation and a small
acquisition made late in FY 1993. This accounts for approximately $3.9 million
of the increase. Approximately $1.9 million is from increased selling expense
earlier in the year related to the intra-arterial blood gas monitoring products.
Approximately $3.7 million is from increased selling and administrative expenses
relating to the company's growing home care business. The remaining $2.3 million
increase is the net result of a credit for a change in estimate for depreciation
expense, an insurance premium refund in FY 1993 and expenses associated with the
investigation of the fire in Brooklyn referred to below. As discussed elsewhere,
the restructuring actions are expected to help control the rate of growth in
selling and administrative spending.
(Dollars in millions) Percent
1994 1993 Change
----------------------------------------
Selling and Administrative Expenses $95.8 $83.2 15.1%
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses for FY 1994 decreased 3.5% from FY 1993.
This decrease resulted almost entirely from reduced spending on the
intra-arterial blood gas monitoring product. In FY 1993 significant research and
development expense was incurred to ready the product for market. When shipment
of the product commenced in late FY 1993, the need for research and development
spending was reduced. As discussed elsewhere, shipments of this product ceased
in December 1993 and future spending on this technology has been eliminated by
the restructuring action taken in the fourth quarter. In the future, research
and development activities will continue across all remaining product lines,
however, overall expense will be reduced due to the elimination of the
intra-arterial blood gas monitoring product.
(Dollars in millions) Percent
1994 1993 Change
--------------------------------------
Research and Development Expenses $24.9 $ 25.8 (3.5)%
RESTRUCTURING CHARGES
Although the company's home care and medical gas businesses had a year of
growth and profitability, a number of market and regulatory developments
converged to make the past year a particularly challenging one for the company
as a whole. In addition to weakness in the aviation market, the combination of
health care reform uncertainty in the United States and recessionary economic
conditions in Europe reduced demand for the company's hospital capital equipment
products, especially early in the year. Moreover, a tragic fire at Brooklyn, New
York's Maimonides Medical Center in September 1993 called into question the
safety of certain of the company's products, which were absolved four months
later by the findings of an extensive, independent investigation. However,
initial reports that the company's products might have caused the fire may have
prompted the Food and Drug Administration (FDA) to conduct additional
investigations at some of the company's facilities prior to completion of its
planned improvement programs and renew the issue of a consent decree. The
January 1994 consent decree primarily affects the company's portable ventilator
facility in Boulder, Colorado and the FOxS intra-arterial blood gas monitoring
operation in Carlsbad,
44
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (CONT)
California, requiring a cessation of shipments to customers in the United States
from these two locations until FDA is satisfied that these locations are in
compliance with Good Manufacturing Practice (GMP) regulations. The agreement
also requires compliance with GMP and Medical Device Reporting (MDR)
requirements, where applicable, throughout the company. In response to these
developments, the company has taken a number of major actions to reposition
itself for the future.
The company has restructured the hospital ventilator portion of its business
in order to improve its profitability at lower levels of revenue than previously
anticipated. The company has consolidated its aviation business to three
facilities from four so that this part of the business remains profitable in the
current market conditions. The company is closing its Boulder, Colorado facility
and transferring the manufacture of the portable ventilators made there to its
ISO(International Standards Organization) 9002-certified facility in the
Republic of Ireland from where the company will serve customers outside the U.S.
for the Companion 2801 portable ventilator. The company substantially reduced
the FOxS operation, is addressing its GMP compliance issues and is offering it
for sale. The company continues to believe that the proprietary intra-arterial
blood gas monitoring system represents a valuable and important new technology
and that the long-term commercial opportunity for it remains large. However, the
company has concluded that the opportunity is better suited to a company with
greater financial resources, and will attempt to find a buyer for this operation
by midyear.
As a result of the plan for restructuring, during FY 1994 the company
recorded restructuring charges of $43.2 million. Included in the charges are
restructuring actions taken during the second quarter (approximately $9 million)
principally made up of severance costs related to a 4.9% employment level
reduction in the company's ventilator and blood gas monitoring divisions (126
employees), the closing of its aviation facility in El Segundo, California, a
revaluation of certain productive assets, the consolidation of its facilities
including offices in its aviation business, blood gas monitoring operations, and
sales and service operations in France and the U.S., as well as other
miscellaneous charges and costs associated with matching the size of the
company's operation with the various markets in which the company operates. The
second quarter charge consisted of approximately $3.3 million in personnel
related charges, $4.4 million in non-cash asset write-downs and $1.3 million for
the consolidation of manufacturing and marketing facilities.
In the fourth quarter of FY 1994, the company effected a second restructuring
which will result in a 7.5% reduction in its work force (188 employees). The
restructuring plan includes the closing of the portable ventilator facility in
Boulder, Colorado and the curtailment of the intra-arterial blood gas monitoring
operation in Carlsbad, California. The restructuring resulted in an additional
charge of $34.2 million in the fourth quarter of FY 1994. This charge consisted
of approximately $4.4 million in personnel-related charges, $9.6 million in non-
cash write-downs of inventory, facilities and equipment, and $15.7 million in
non-cash write-downs of certain prepaid royalties, capitalized software and
patents. Portable ventilators will continue to be sold to customers outside the
U.S.; manufacturing will be transferred to the company's facility in the
Republic of Ireland. The company expects to obtain a buyer for the intra-
arterial blood gas monitoring product line or close the facility around midyear.
The expected costs for this period, approximately $4.5 million, which represent
an effective and orderly completion of the stated restructuring plan and do not
include the costs of continuing operations, have been accrued.
As of January 31, 1994 approximately $12.0 million remained in accrued
liabilities representing primarily 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 over the first three quarters of FY 1995. After the
third quarter the company should begin to see the real cash flow benefit of the
restructuring plan. It is not expected that the restructuring will require
significant borrowing. Because of the historical drain on cash flow and the
higher than expected costs of developing the proprietary intra-arterial blood
gas monitoring system, the company expects improved cash flow and profitability
once the restructuring plan is completed. The company also expects improved
efficiency and profitability from the consolidation of the marketing offices of
the hospital/physician sales force in the United States and the consolidation of
the aviation operation from four locations to three.
45
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (CONT)
OTHER EXPENSES
Other expenses increased by 48.1% in FY 1994 when compared to FY 1993. This
primarily resulted from increased interest expense of $.8 million and
unfavorable foreign currency adjustments of $1.0 million. The unfavorable
foreign currency translation adjustments are primarily the result of market
fluctuations in the strengthening of the U.S. Dollar.
<TABLE>
<CAPTION>
(Dollars in millions) Percent
1994 1993 Change
--------------------------------
<S> <C> <C> <C>
Other Expenses $4.0 $2.7 48.1%
</TABLE>
PROVISION FOR INCOME TAXES
The FY 1994 effective benefit rate of 18.8% changed from the FY 1993 tax rate
of 20.7%. Nondeductible amortization combined with losses for which there is no
current benefit caused the FY 1994 benefit rate to be less than the statutory
benefit rate. In contrast, the FY 1993 effective tax rate was less than the U.S.
statutory rate of 34% because a significant portion of international income was
taxed at the lower rate of 10%.
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. During the past
decade, the company's business has changed substantially from being
predominately a supplier of life-support capital equipment to the U.S. hospital
market towards the home care market. This trend helps lower the company's U.S.
regulatory and health care reform risks. Additionally, the company has undergone
substantial restructuring during fiscal year 1994. As a result, the company
believes it is well positioned to take advantage of this 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.
The new tax package recently passed by Congress will increase the company's
effective corporate tax rate somewhat over the next couple of years. The company
has been affected primarily by the retroactive reinstatement of the research and
development credit which had an immediate benefit on the fiscal 1994 effective
rate. However, this benefit will be more than offset by the future increase in
the top U.S. corporate tax rate to 35% on taxable income exceeding $10 million
and a reduction in the allowance of a deduction for business meals and
entertainment from 80% to 50%.
FINANCIAL CONDITION
WORKING CAPITAL
The ratio of current assets to current liabilities is 1.6 at January 31,
1994, down from 2.8 at January 31, 1993. Working capital decreased, from $81.1
million to $51.9 million. The primary reason for the decrease was the issuance
of notes payable of $19.9 million of which $12.9 million was used to fund the
acquisition of SEFAM with the remainder incurred to fund ongoing operations. In
addition, the restructuring discussed previously resulted in an approximate
$12.0 million increase in other accrued expenses.
LIQUIDITY AND CAPITAL RESOURCES
Net cash and cash equivalents provided by operating activities were
sufficient to fund the company's capital expenditures, scheduled repayments of
long-term debt and dividend payments. The increase in net cash and cash
equivalents provided by operating activities is due to several factors. A 15%
increase in sales caused an increase in receivables and inventory in FY 1993.
The lack of comparable growth rate of these assets and a tightening of controls
has caused a stabilization in the growth rate of these assets and in turn has
eliminated the large use of cash related to inventory and receivables. These
increases were somewhat offset by approximately $4.8 million in severance and
relocation costs paid during the year associated with the restructuring.
Net cash and cash equivalents used in investing activities increased when
compared to FY 1993. This increase is primarily due to the acquisition of Hoyer
Medizintechnik and SEFAM S.A. as discussed in Note 16, offset by reduced capital
expenditures. FY 1995 capital expenditures are expected to remain relatively
consistent with current year levels. The company will continue to improve and
replace existing fixed assets as appropriate.
46
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (CONT)
Net cash and cash equivalents provided from financing activities in FY 1994
remained relatively stable as compared to FY 1993. This is the net result of
short-term borrowing increases of $19.9 million which was used primarily to fund
the acquisition of SEFAM and repurchase the approximately $2.7 million of the
company's common stock.
Long-term debt, excluding current maturities, at year-end represents 26.4% of
total capital (long-term debt plus stockholder's equity) compared to 24.3% at
January 31, 1993. See Notes 5 and 8 to the consolidated financial statements for
more detailed description of short- and long-term debt portfolios. At year-end,
the company had $35 million of unsecured bank lines-of-credit available, $7.4
million of which was unused.
The company previously announced it had started planning for a facility
suitable for its longer-term requirements in the Kansas City area. The company
is moving forward on obtaining the facility site funded by selling, as the
market conditions permit, real estate and other assets that are no longer part
of the company's long-term plans. However, the remainder of the project has been
indefinitely postponed.
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 healthcare 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. We would not be surprised if the same holds true in the future.
In any event, we are 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.
RECENT ACCOUNTING PRONOUNCEMENTS
Refer to Note 1 of the consolidated financial statements for discussion of
recent accounting pronouncements.
RESULTS OF OPERATIONS--JANUARY 31, 1993 COMPARED TO DECEMBER 31, 1991
NET SALES
Net sales volume for the year ending January 31, 1993 (FY 1993), increased
17.2% compared to the year ended December 31, 1991. The following table shows
sales volume for the significant markets in which the company operates:
<TABLE>
<CAPTION>
(Dollars in millions) Percent
1993 1991 Change
----------------------------------
<S> <C> <C> <C>
Home Care Market $ 92.8 $ 68.1 36.3%
Hospital/Physician Market 182.1 161.2 13.0%
Aviation Market 25.2 26.8 (6.0)%
------ ------
Total Net Sales $300.1 $256.1 17.2%
====== ======
</TABLE>
Sales growth in the home care market was very strong. Three major clinical
areas--home oxygen therapy, long-term mechanical ventilation and the diagnosis
and treatment of adult sleep disorders--contributed to this growth. Over the
past three years, home care has achieved a 25% compound annual growth rate. As
the size of the home oxygen therapy portion of this business continues to grow,
we expect the rate of growth for this portion to slow. The company expects the
diagnosis and treatment of adult sleep disorders to become an increasingly large
portion of its home care business. This new area is a relatively young, rapidly
growing market. New products are planned for introduction throughout the coming
year.
47
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (CONT)
Sales growth of 13.0% in the hospital/physician market reflects continued
growth in both the United States and international markets. The company expects
additional growth of its hospital/physician office business primarily due to the
combination of:
. Growth of the PB3300 Intra-Arterial Blood Gas Monitoring System, principally
(although not only) in the United States and Japan next year.
. Continuing growth of the 7200 Series Ventilatory System, principally
internationally.
. The April 1993 commencement of our hospital products joint marketing venture
in Germany.
. Continuing growth of the CliniVision Respiratory Care Management Information
System in the United States.
Sales to the aviation market continued to be affected adversely by the
depressed financial condition of the airline industry. The company expects a
relatively stable volume of aviation business next year. Although the company
does not expect significant aviation volume growth next year, the company does
expect to improve operating profitability.
INTERNATIONAL SALES GROWTH
Growth continued in the international marketplace. The following tables
reflect the amount of sales and operating profits from the United States and
foreign geographic segments:
<TABLE>
<CAPTION>
Net Sales Operating Profit (Loss)
(Dollars in millions) Percent (Dollars in millions) Percent
1993 1991 Change 1993 1991 Change
---------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Operations $245.8 $214.4 14.6% $ 8.5 $(6.3) --
Foreign Operations 54.3 41.7 30.2% 12.6 6.7 88.1%
------ ------ ----- -----
Total $300.1 $256.1 17.2% $21.1 $ .4 5175.0%
====== ====== ===== =====
</TABLE>
The following table reflects sales by customer location:
<TABLE>
<CAPTION>
Net Sales
(Dollars in millions) Percent of Sales
1993 1991 1993 1991
--------------------------------------------
<S> <C> <C> <C> <C>
Customers within the U.S. $205.9 $182.5 68.6% 71.3%
Customers outside the U.S. 94.2 73.6 31.4% 28.7%
------ ------ ----- -----
Total Net Sales $300.1 $256.1 100.0% 100.0%
====== ====== ===== =====
</TABLE>
As in previous years, the company emphasized the development and growth of
international business. Over time, the company expects this percentage to
increase. To achieve such growth, the company continues to strengthen its
international channels of distribution, manufacturing and research and
development capabilities. In October 1992, the company announced an agreement
with Hoyer Medizintechnik, a long-standing distributor of the company's products
in Germany, to establish a venture to sell, service and support Puritan-Bennett
hospital products in that major market of nearly 80 million people. Named
Puritan-Bennett Hoyer GmbH, the venture will commence commercial operations in
April 1993. The company is incurring some costs prior to start-up, and there
will be some additional transition costs during the first few months of venture
operations. When added to the company's existing direct sales and service
operations in France, Italy and the United Kingdom and the manufacturing and
distribution operation located in Galway, Republic of Ireland, the marketing
venture in Germany will result in a significant and growing Puritan-Bennett
presence within the strategically important European Community.
In addition, the company is positioned to serve the North American market in
the North American Free Trade Agreement context. The company believes Mexico
represents a significant long-term growth opportunity and is strengthening its
channels of distribution there and the manufacturing operation in Tijuana
continues to grow. The company is already well established in the United States
and Canada.
48
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (CONT)
GROSS PROFIT
Gross profit percentage for FY 1993 increased 4.2% over 1991. The improvement
is the result of actions taken late in 1991 and early in FY 1993 to return
profitability to higher levels in addition to the nonrecurring warranty and
inventory reserves recorded in 1991. These actions included a one-time voluntary
early retirement plan, terminations and reduced spending.
<TABLE>
<CAPTION>
(Dollars in millions) Percent
1993 1991 Change
--------------------------------
<S> <C> <C> <C>
Gross Profit $130.2 $100.3 29.8%
Gross Profit Percentage 43.4% 39.2% 4.2%
</TABLE>
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses for FY 1993 increased 9.8% over 1991.
This increase is due primarily to the increase in sales volume partially offset
by the actions referred to above to reduce spending.
<TABLE>
<CAPTION>
(Dollars in millions) Percent
1993 1991 Change
-------------------------------
<S> <C> <C> <C>
Selling and Administrative Expenses $83.2 $75.8 9.8%
</TABLE>
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses for FY 1993 increased 7.1% over 1991. This
increase is due almost entirely to the company's intra-arterial blood gas
monitoring technology. This technology was released to the market during FY
1993. The overall rate of research and development spending is not expected to
change significantly as a result of this technology moving into the production
phase. In the future, research and development activities will continue across
all product lines.
<TABLE>
<CAPTION>
(Dollars in millions) Percent
1993 1991 Change
-------------------------------
<S> <C> <C> <C>
Research and Development Expenses $25.8 $24.1 7.1%
</TABLE>
OTHER EXPENSES
Other expenses decreased by 15.6% in FY 1993 when compared to 1991. This
decrease results primarily from accruing $1.9 million in early retirement
benefits in late 1991 as a result of the special voluntary early retirement
program offered in 1991. There were no comparable costs in FY 1993. The decrease
was offset somewhat by increased interest expense of $1.7 million primarily due
to reduced levels of capitalized interest and unfavorable foreign currency
translation adjustments of $.6 million. The reduced levels of capitalized
interest are the result of the completion of construction projects in late 1991.
The unfavorable foreign currency translation adjustments are primarily the
result of market fluctuations in the strength of the U.S. Dollar.
<TABLE>
<CAPTION>
(Dollars in millions) Percent
1993 1991 Change
-------------------------------
<S> <C> <C> <C>
Other Expenses $2.7 $3.2 (15.6)%
</TABLE>
PROVISION FOR INCOME TAXES
The FY 1993 tax rate was 20.7%, changed from the 1991 effective benefit of
121.1%. International income taxed at 10% caused the FY 1993 effective tax rate
to be less than the U.S, statutory rate of 34%. In contrast, the large 1991 tax
benefit resulted from losses in the U.S. with a benefit of 39% versus
international tax expense of 10%.
President Clinton has made clear his determination to increase both personal
and corporate taxes in order to reduce federal government deficits and to help
pay for new programs, such as expanded financial access to health care. While it
is too soon at this time to know what specific tax changes will be enacted, it
is prudent to assume that our effective corporate tax rate will increase
somewhat over the next couple of years.
49
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (CONT)
RESULTS OF OPERATIONS - JANUARY 31, 1992 (TRANSITION PERIOD) COMPARED TO
JANUARY 31, 1991
Sales volume for January 1992 increased 42% compared to January 1991. January
1991 sales were lower than usual primarily because the company entered January
1991 with a much lower order backlog than normal.
The gross margin percentage was 36% for January 1992 versus 37% for January
1991. The low gross margin was primarily the result of unusual expenses
associated with the company's workers compensation insurance.
Selling and administrative expenses for January 1992 were up 36% from January
1991. This increase was due primarily to the increase in sales volume and an
increase in insurance expense associated with workers compensation.
Research and development expenses for January 1992 increased 53% from January
1991. This increase was due primarily to the continued growth in research and
development activities related to the company's intra-arterial blood gas
technology.
Other expenses for January 1992 increased $615,000 from January 1991. The
increase was principally the result of foreign currency transaction losses, as
well as, increased interest expense. The interest expense increased primarily
because the company stopped capitalizing interest in late 1991 upon completion
of its new facility in Carlsbad, California.
Income taxes for January 1992 were unfavorably affected by the change in
fiscal year. The Internal Revenue Service does not provide for the carryback of
the U.S. net operating loss sustained in January 1992; therefore, no tax benefit
was realized related to the company's U.S. book net operating loss of
$5,875,000, which includes the effect of the accounting change discussed below.
The net operating loss will be carried forward and $2,502,000 of this amount
will be amortized ratably over the next six years.
Effective January 1, 1992, the company changed its method of accounting for
deferred compensation in accordance with Financial Accounting Standards Board
Statement No. 106 which amended certain provisions of Accounting Principles
Board Opinion No. 12. The cumulative effect of this change was $3,059,000. Due
to existing net operating loss carryforwards, no tax benefit was recognized on
the cumulative effect of this change.
50
<PAGE>
PURITAN-BENNETT CORPORATION AND SUBSIDIARIES
DIRECTORS
Burton A. Dole Jr./4/
Chairman, President and Chief Executive Officer
Puritan-Bennett Corporation
Overland Park, Kansas
Charles Duboc/1-3/
Chairman (Retired)
Western Casualty and Surety Company
Kansas City, Missouri
C. Phillip Larson Jr., M.D., M.S./4/
Professor of Anasthesia and Surgery
Stanford University School of Medicine
Stanford, California
Andre F. Marion/1-2/
Vice President
Perkin Elmer Corporation
President
Applied Biosystems Division
Foster City, California
Thomas A. McDonnell/1-2/
President and Chief Executive Officer
DST Systems, Inc.
Kansas City, Missouri
Daniel C. Weary/1-3/
Attorney
Blackwell Sanders Matheny Weary & Lombardi
Kansas City, Missouri
Frank P. Wilton/2-3/
Chairman and President
Ethox Corporation
Buffalo, New York
/1/ Member of the Compensation Committee
/2/ Member of the Audit Committee
/3/ Member of the Pension Committee
/4/ Member of the Technology Committee
CORPORATE OFFICERS
Burton A. Dole Jr.
Chairman, President and Chief Executive Officer
John H. Morrow
Executive Vice President and Chief Operating Officer
Robert L. Doyle
Senior Vice President, Marketing
Thomas E. Jones
Senior Vice President, General Manager
Puritan Group
David P. Niles
Vice President,
Quality and Regulatory Affairs
Alexander R. Rankin
Vice President, General Manager
Bennett Group
Lee A. Robbins
Vice President, Chief Financial Officer and Controller
Derl S. Treff
Treasurer
Daniel C. Weary
Secretary
OPERATING OFFICERS
William C. Fettes
Vice President, General Manager
Gas Products Division
Thomas J. Gaskin
Vice President, Managing Director
Puritan-Bennett Ireland, Limited
Nathan B. Hope
Vice President, Bennett Group Manager Sales and Service
Karl K. Jonietz
Vice President, General Manager
Lenexa Medical Division
Gregory R. Miller
Vice President, General Manager
Oxygen Concentrator Division
Judson S. Neal
Vice President,
Puritan Group Sales and Marketing
James E. Reller
Vice President,
Human Relations
Ernest E. Ross
Vice President,
General Manager Aero Systems
Evan R. Stewart
Vice President,
Information Services
Paul L. Woodring
Vice President,
Research and Development Manager, Ventilator Systems
OTHER
Pierrick Haan
President,
SEFAM S.A.
51
<PAGE>
PURITAN-BENNETT CORPORATION AND SUBSIDIARIES
MEDICAL ADVISORY BOARD
Reuben M. Cherniack, M.D.
Professor Medicine,
University of Colorado,
National Jewish Center for Immunology & Respiratory
Medicine
C. Philip Larson Jr., M.D., M.S.
Professor of Anesthesia and Neurosurgery,
Stanford University School of Medicine
John J. Marini, M.D.
Professor of Medicine,
University of Minnesota Medical School,
Director,
Pulmonary/Critical Care
St. Paul-Ramsey Medical Center
Allan I. Pack, M.D., Ph.D.
Director
Center for Sleep & Respiratory Neurobiology
University of Pennsylvania
Medical Center
Hospital of the University of Pennsylvania
Henning Pontoppidan, M.D.
Reginald Jenney Professor,
Emeritus of Anaesthesia,
Harvard Medical School;
Senior Anesthetist,
Massachusetts General Hospital
Allen K. Ream, M.S., M.S., M.D.
Clinical Associate Professor of Anesthesia
Stanford University
Jean E. Rinaldo, M.D.
Professor of Medicine
Vanderbilt University
Chief Pulmonary Medicine/Critical Care Medicine,
Nashville Department of Veterans Affairs,
Medical Center
Gordon L. Snider, M.D.
Maurice B. Straus
Professor of Medicine, and Vice Chairman,
Department of Medicine
Boston University School of Medicine Chief,
Medical Service,
Boston Veterans Administration Medical Center
The Medical Advisory Board meets at regular intervals to offer its guidance and
advice related to new product programs.
52
<PAGE>
PURITAN-BENNETT CORPORATION AND SUBSIDIARIES
CORPORATE HEADQUARTERS
9401 Indian Creek Parkway
Post Office Box 25905
Overland Park, Kansas 66225-5905
Phone: 913-661-0444
Fax: 913-661-0234
GENERAL COUNSEL
Blackwell Sanders Matheny Weary & Lombardi
Kansas City, Missouri
TRANSFER AGENT AND REGISTRAR
United Missouri Bank, N.A., Kansas City, Missouri
INDEPENDENT AUDITORS
Ernst & Young
Kansas City, Missouri
AVAILABILITY OF 10-K REPORT:
Puritan-Bennett's Annual Report on Form 10-K, filed with the Securities and
Exchange Commission, will be provided to stockholders without charge upon
written request to corporate headquarters, Attention: Derl S. Treff, Treasurer.
NASDAQ LISTING
Puritan-Bennett common stock is publicly traded in the Over-the-Counter Market.
The company's stock trades on the NASDAQ National Market System. The NASDAQ
symbol is PBEN. The company had approximately 3,200 stockholders of record as of
January 31, 1994. Market price information is shown below.
NOTICE OF STOCKHOLDERS' MEETING:
The Annual Meeting of Stockholders will be held at the company's corporate
headquarters, 9401 Indian Creek Parkway, Building 40, Suite 300, Overland Park,
Kansas, on June 10, 1994. The meeting will start at 10:00 a.m. Stockholders who
cannot attend this meeting are urged to exercise their right to vote by proxy.
Your proxy was mailed with this report.
<TABLE>
<CAPTION>
MARKET PRICE INFORMATION
PER NASDAQ: FY 1994 MARKET PRICE
----------------------------------
QUARTER HIGH LOW DIVIDENDS
------- ---- --- ---------
<S> <C> <C> <C>
FIRST 29 7/8 15 1/4 $.03
SECOND 22 3/4 16 5/8 $.03
THIRD 20 3/4 16 $.03
FOURTH 21 15 $.03
FY 1993 Market Price
----------------------------------
Quarter High Low Dividends
------- ------ ------ ---------
First 26 1/4 21 $.03
Second 34 1/4 25 1/2 $.03
Third 35 1/2 27 1/8 $.03
Fourth 35 1/2 27 1/4 $.03
</TABLE>
53
<PAGE>
Exhibit (21)
SUBSIDIARIES OF COMPANY
Registrant:
PURITAN-BENNETT CORPORATION
Subsidiaries of Registrant:
Place of
Name Incorporation
---- -------------
Puritan-Bennett International, Inc. Guam
Puritan-Bennett Canada, Ltd. Canada
Puritan-Bennett International Corp. Maryland
Puritan-Bennett Aero Systems Co. California
Puritan-Bennett UK Limited United Kingdom
Puritan-Bennett (HK) Limited Hong Kong
Puritan-Bennett France SARL France
Medicomp, Inc. (56% held by Registrant) Florida
Puritan-Bennett Italia S.r.l. Italy
Puritan-Bennett Australia PTY. Limited Australia
Puritan-Bennett Nederland B.V. The Netherlands
Puritan-Bennett Holdings Ireland Limited Ireland
Puritan-Bennett (Ireland) Limited Ireland
Puritan-Bennett de Mexico S.A. de C.V. Mexico
Puritan-Bennett Helsinki OY Finland
Puritan-Bennett Hoyer GmbH (50% held by
Registrant) Germany
SEFAM S.A. France
Puritan-Bennett France Holdings S.A. France
Lit Dupont S.A. (80% held by SEFAM S.A.) France
Puritan-Bennett Ireland Distribution Limited Ireland
All of the above Subsidiaries are included in Registrant's consolidated
financial statements and are wholly-owned by Registrant, unless otherwise
indicated.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Puritan-Bennett Corporation and subsidiaries of our report dated March 7,
1994, included in the Annual Report of Puritan-Bennett and subsidiaries for the
fiscal year ending January 31, 1994.
Our audits also included the financial statement schedules listed in Item 14(a).
These schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion, the
financial statement schedules referred to above, when considered in relation to
the basic financial statements taken as a whole, present fairly in all material
respects the information set forth therein.
We also consent to the incorporation by reference in Registration Statements:
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 March 7, 1994, with respect to the consolidated financial
statements and schedules of Puritan-Bennett Corporation and subsidiaries
included and/or incorporated by reference in this Annual Report (Form 10-K) for
the year ended January 31, 1994.
/s/ERNST & YOUNG
Kansas City, Missouri
April 26, 1994
