-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, REBZeLkCVYI5sM1v7+DO8De4lWtvXyswDtZubtu2RqwnAMxQ5Tt0+IEBkrIrGyvS ECwsUB0AjtdD/TAO47+2oA== 0000950131-94-000577.txt : 19940516 0000950131-94-000577.hdr.sgml : 19940516 ACCESSION NUMBER: 0000950131-94-000577 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19940131 FILED AS OF DATE: 19940502 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PURITAN BENNETT CORP CENTRAL INDEX KEY: 0000081199 STANDARD INDUSTRIAL CLASSIFICATION: 3842 IRS NUMBER: 440399150 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-03717 FILM NUMBER: 94525599 BUSINESS ADDRESS: STREET 1: 9401 INDIAN CREEK PKWY BLDG 40 STE 300 CITY: OVERLAND PARK STATE: KS ZIP: 66210 BUSINESS PHONE: 913-338-7410 MAIL ADDRESS: STREET 1: 9401 INDIAN CREEK PARKWAY CITY: OVERLAND PARK STATE: KS ZIP: 66210 10-K 1 FORM 10-K 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. PART I ITEM 1. BUSINESS - - ----------------- 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: 2 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 3 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: 4 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. 5 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. 6 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 7 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 8 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, 9 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. 10 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 11 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 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 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 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 EXECUTIVE OFFICERS OF THE COMPANY ---------------------------------
Year First Name Office Age Elected ---- ------ --- ------- 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
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 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 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 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 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 (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 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
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 - - ------------------------------------------------------------------------------------------------------------------------------------ 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 ======== ======= ======= ======= ======= ========
(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
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 - - --------------------------------------------------------------------------------------------------------------------------------- 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 ========= ============ ======== ============= ========== =========
(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
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 - - ------------------------------------------------------------------------------------------------------------------------------ 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 ======== ====== ====== ====== ======= ========
(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
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 - - ------------------------------------------------------------------------------------------------------------------------------- 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 ======== ======== ======= ======= ======== ========
26 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
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 - - -------------------------------------------------------------------------------------------------------------------- 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 =========== ========== ========= ============ ============
(A) Construction of Bennett building in Carlsbad, CA. (B) Write-downs related to restructuring 28
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 - - --------------------------------------------------------------------------------------------------------------------------- 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
29 SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
- - ------------------------------------------------------------------------------------------------------------------------------- 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 - - ------------------------------------------------------------------------------------------------------------------------------- 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)
30 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
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION COL. A COL. B - - ------------------------------------------------------------------------------ ITEM Charged to Costs and Expenses - - ------------------------------------------------------------------------------ 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 *
32 EXHIBIT INDEX
EXHIBITS FILED WITH SECURITIES AND EXCHANGE COMMISSION (NUMBER AND DESCRIPTION OF EXHIBIT) Page No. (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
33 (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 EX-10.A 2 EMPLOYMENT AGREEMENT 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. 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 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. 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. 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. EX-10.C 3 BONUS PLAN 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 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 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 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 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 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 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 TABLE I Return on Net Assets (%) as B O N U S P O O L Defined in Sec. I
Pre-Bonus Pre Tax Pre-Bonus After-Tax - - ----------------- ------------------- At Least Not More At 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
8 TABLE II Return on Net B O N U S P O O L Assets (%) as Defined in Sec. I
Pre-Bonus Pre Tax Pre-Bonus After-Tax BUSINESS UNIT RESULTS - - ----------------- ------------------- (PURITAN GROUP, BENNETT At Least Not More At Not More PURITAN GROUP GROUP & AERO SYSTEMS) Than Least Than 1986 1987-1989 FOR 1990, AND BEYOND - - ------------------------------------------------------------------------------------- 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
9 APPENDIX I ILLUSTRATIVE EXAMPLE PARTICIPANT - - A BUSINESS UNIT - - PURITAN GROUP, BENNETT GROUP (ex. FOxS) & AERO SYSTEMS
BONUS BONUS BONUS POOL PERCENT ALLOCATION RATIO EARNED ----------- ----- -------- 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 -------
10 EX-10.DII 4 AGREEMENT 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. 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- EX-10.DIII 5 AGREEMENT 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. 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- EX-10.E 6 DEFERRED COMP PLAN 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. 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- 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- 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- 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- 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- 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 ----------------------------------------- -7- EX-10.H 7 PROMISSORY NOTE 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 EX-10.J 8 INDEMNIFICATION AGREE 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. 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 -2- 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- 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 -4- 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- 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, -6- 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: -7- (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 -8- 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- 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. -10- 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 ---------------------------------- -11- EX-11 9 COMP OF EARNINGS EXHIBIT 11 STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
QUARTER ENDING YEAR ENDING JANUARY 31 JANUARY 31 -------------------------------- ------------------------------- 1994 1993 1994 1993 -------------------------------- ------------------------------- 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) $1.24 ================================ ===============================
The company does not meet the 3% dilution test contained in Accounting Principles Board Opinion #15, therefore disclosure of diluted earnings per share on the face of the condensed consolidated statements of operations is not required. EX-13 10 ANNUAL REPORT EXHIBIT 13 PURITAN-BENNETT CORPORATION AND SUBSIDIARIES FINANCIAL REPORT FISCAL YEAR 1994 Incoming Orders, Net Sales and Net Income (Loss) Per Share.................. 21 Ten-Year Summary............................................................ 22 Management's Responsibility for Financial Statements........................ 24 Report of Independent Auditors.............................................. 24 Consolidated Balance Sheets................................................. 25 Consolidated Statements of Operations....................................... 26 Consolidated Statements of Stockholders' Equity............................. 27 Consolidated Statements of Cash Flows....................................... 28 Notes to Consolidated Financial Statements.................................. 29 Supplemental Information for the Ten-Year Summary........................... 41 Management's Discussion and Analysis of Results of Operations and Financial Condition........................................ 42
Incoming Orders, Net Sales ($ 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 ------- ------- ------- ------- ------- ------- ------- ------- 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) - - ---------------------------------------------------------------------------------------------------------------
21 TEN-YEAR SUMMARY Puritan-Bennett Corporation and Subsidiaries All dollar amounts in thousands, except common share data
Transition 1994 1993 Period 1991 - - ------------------------------------------------------------------------------- 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 - - -------------------------------------------------------------------------------
See page 41 for the supplemental information for the ten-year summary. 22
1990 1989 1988 1987 1986 1985 1984 - - -------------------------------------------------------------------------------- 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 - - --------------------------------------------------------------------------------
*Reflects transition period change in accounting for deferred compensation. 23 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 CONSOLIDATED BALANCE SHEETS Puritan-Bennett Corporation and Subsidiaries Dollars in thousands, except per share data
January 31 1994 1993 --------------------- 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 ======== ========
See notes to consolidated financial statements 25 CONSOLIDATED STATEMENTS OF OPERATIONS Puritan-Bennett Corporation and Subsidiaries Dollars in thousands, except per share data
Year Ended Transition Year Ended January 31 Period December 31 1994 1993 Note 2 1991 ---------------------------------------------- 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) ========== ========== ========== ==========
See notes to consolidated financial statements 26 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Puritan-Bennett Corporation and Subsidiaries Dollars in thousands, except per share data
Additional Deferred Common Stock Paid-In Retained Stock Treasury Shares Par Value Capital Earnings Awards Stock ---------------------------------------------------------------------- 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) ========== ========== ========== ========== ========== ==========
See notes to consolidated financial statements 27 CONSOLIDATED STATEMENTS OF CASH FLOWS Puritan-Bennett Corporation and Subsidiaries Dollars in thousands
Year Ended Transition Year Ended January 31 Period December 31 1994 1993 Note 2 1991 ---------------------------------------------- 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 ======== ======== ======= ========
See notes to consolidated financial statements 28 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 $48,000,000. 29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Puritan-Bennett Corporation and Subsidiaries NOTE 1: SIGNIFICANT ACCOUNTING POLICIES (CONT) ACCOUNTING CHANGES: During 1994 the company changed its methods of accounting for income taxes to conform with Statement of Financial Accounting Standards (SFAS) No. 109 "Accounting for Income Taxes" (see Note 7). On January 31, 1994, the company changed its method of accounting for postemployment benefits, retroactive to February 1, 1993, to conform with SFAS No. 112 "Employers' Accounting for Postemployment Benefits" (see Note 6). The financial statements for the one-month transition period ended January 31, 1992, were restated for the cumulative effect of a change in accounting for deferred compensation (see Note 2). The cumulative effect of these changes were as follows:
Year Ended Transition Year Ended January 31 Period December 31 1994 1993 Note 2 1991 (Dollars in thousands) Income taxes ($.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) $ - ======= ====== ======= ======
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:
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) One Month Period Dollars in thousands, except per share data Ended January 31 1991 ---------------- 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) ===========
30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT) NOTE 2: CHANGE IN FISCAL YEAR (CONT)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) One Month Period Dollars in thousands Ended January 31 1991 ---------------- 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) =======
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.
NOTE 3: INVENTORIES Inventories consist of: 1994 1993 (Dollars in thousands) -------------------------- 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 ======= =======
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 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT) NOTE 4: PLANT AND EQUIPMENT
Plant and equipment consist of: 1994 1993 (Dollars in thousands) ---------------------- 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 ======== ========
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:
1994 1993 1991 (Dollars in thousands) --------------------------- 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%
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:
Pension Supplemental 1994 1993 1991 1994 1993 1991 DEFINED BENEFIT PLANS: (Dollars in thousands) ------------------------ ---------------------- 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 ======= ======= ======= ===== ===== =====
32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT) NOTE 6: EMPLOYEE BENEFITS (CONT) Assumptions used in determining the net cost for the defined benefit plans were:
Pension Supplemental 1994 1993 1991 1994 1993 1991 ---------------------------------------------- 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%
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:
Pension Supplemental 1994 1993 1994 1993 ACTUARIAL PRESENT VALUE OF BENEFIT OBLIGATIONS: (Dollars in thousands) ---------------- -------------- 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 ======= ======= ====== ======
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 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:
(Dollars in thousands) ---------------------- Service cost $ 35 Interest cost 166 Amortization of unrecognized net liability 92 ---- Net Cost $293 ====
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:
January 31 February 1 1994 1993 (Dollars in thousands) ---------------------- 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 ====== ======
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 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT) NOTE 7: INCOME TAXES The provision for (benefit from) income taxes consists of the following:
Liability Method Deferred Method 1994 1993 1991 CURRENT: (Dollars in thousands) -------------------------- 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) ======== ====== =======
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:
January 31 February 1 1994 1993 Assets Liabilities Net Assets Liabilities Net (Dollars in thousands) ----------------------------- ----------------------------- 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) ======= ====== ======= ======= ======= =======
35 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:
1993 1991 (Dollars in thousands) ----------------------- 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) ======== =======
A reconciliation of the provision for (benefit from) income taxes to the statutory federal rate is as follows:
1994 1993 1991 (Dollars in thousands) --------------------------------------------------------------------- Effective Effective Effective Amount Rate Amount Rate Amount Rate -------- --------- ------- --------- ------- -------- 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)% ======== ===== ======= ===== ======= ======
NOTE 8: LONG-TERM DEBT Long-term debt is summarized as follows:
1994 1993 (Dollars in thousands) ---------------------- 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 ======= =======
36 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.
Number of Shares --------------------------------------- 1988 OPTION PLAN: Reserved Granted Available -------- ------- --------- 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 ========= ======= =========
37 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).
Number of Shares ----------------------------- 1988 AWARD PLAN: Reserved Granted Available -------- ------- --------- 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 ======= ======= =======
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:
(Dollars in thousands) ---------------------- 1995 $ 2,459 1996 2,336 1997 2,023 1998 1,852 1999 1,034 Thereafter 1,956 ------- Total minimum lease payments $11,660 =======
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 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:
(Dollars in thousands) ------------------------------------------------------------ Transfers Sales to Between Operating Unaffiliated Geographic Profit Identifiable Customers Areas Total (Loss) Assets ------------ ---------- -------- --------- ------------ 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 ======== ======== ======== ======== ========
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 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:
(Dollars in thousands) ---------------------- 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 =======
40 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:
Quarter Ended (Dollars in thousands, except per share data) --------------------------------------------- Apr. 30 July 31 Oct. 31 Jan. 31 ------- ------- ------- ------- 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
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 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:
(Dollars in millions) Percent 1994 1993 Change ---------------------------------- 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% ====== ======
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 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:
Net Sales Operating Profit (Loss) (Dollars in millions) Percent (Dollars in millions) Percent 1994 1993 Change 1994 1993 Change ----------------------------- -------------------------------- 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% ====== ====== ====== ======
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 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 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 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.
(Dollars in millions) Percent 1994 1993 Change -------------------------------- Other Expenses $4.0 $2.7 48.1%
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 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:
(Dollars in millions) Percent 1993 1991 Change ---------------------------------- 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% ====== ======
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 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:
Net Sales Operating Profit (Loss) (Dollars in millions) Percent (Dollars in millions) Percent 1993 1991 Change 1993 1991 Change ---------------------------------- ------------------------------------ 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% ====== ====== ===== =====
The following table reflects sales by customer location:
Net Sales (Dollars in millions) Percent of Sales 1993 1991 1993 1991 -------------------------------------------- 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% ====== ====== ===== =====
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 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.
(Dollars in millions) Percent 1993 1991 Change -------------------------------- Gross Profit $130.2 $100.3 29.8% Gross Profit Percentage 43.4% 39.2% 4.2%
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.
(Dollars in millions) Percent 1993 1991 Change ------------------------------- Selling and Administrative Expenses $83.2 $75.8 9.8%
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.
(Dollars in millions) Percent 1993 1991 Change ------------------------------- Research and Development Expenses $25.8 $24.1 7.1%
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.
(Dollars in millions) Percent 1993 1991 Change ------------------------------- Other Expenses $2.7 $3.2 (15.6)%
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 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 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 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 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.
MARKET PRICE INFORMATION PER NASDAQ: FY 1994 MARKET PRICE ---------------------------------- QUARTER HIGH LOW DIVIDENDS ------- ---- --- --------- 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
53 EX-21 11 SUBSIDIARIES 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. EX-23 12 CONSENT OF ERNST & YOUNG 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 -----END PRIVACY-ENHANCED MESSAGE-----