-----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, MMq2v4TG5DmCWha43yw+/FgfDIX5VY4+qqfX5+MngQpUeTWl5io4gKAvBWBFRpoe 1M6a4mrsQSYZrAQf9d/4UQ== 0000950131-94-001420.txt : 19940916 0000950131-94-001420.hdr.sgml : 19940916 ACCESSION NUMBER: 0000950131-94-001420 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19940731 FILED AS OF DATE: 19940913 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-03717 FILM NUMBER: 94548861 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-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q [ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the period ended July 31, 1994 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition period from to Commission File Number 0-3717 PURITAN-BENNETT CORPORATION (Exact name of registrant as specified in its charter) Delaware 44-0399150 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 9401 Indian Creek Parkway Building #40, Suite 300 P.O. Box 25905 Overland Park, Kansas 66225 (Address of principal executive offices) (Zip Code) Company's telephone number, including area code 913-661-0444 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No As of September 7, 1994, there were 12,524,965 shares of the Company's $1.00 par value common stock outstanding. 1 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------- The unaudited condensed consolidated financial statements incorporated by reference to the Puritan-Bennett Corporation Second Quarter Report, 1995, have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six month period ended July 31, 1994 are not necessarily indicative of the results that may be expected for the year ended January 31, 1995. For further information refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended January 31, 1994. 2 PART I - FINANCIAL INFORMATION ------------------------------ Item 1. - Financial Statements. Company or group of companies for which report is filed: PURITAN-BENNETT CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Operations (Unaudited) - Three months ended July 31, 1994 and 1993; and six months ended July 31, 1994 and 1993 (incorporated herein by reference to the Puritan-Bennett Corporation Second Quarter Report, 1995). Condensed Consolidated Balance Sheets (Unaudited) - July 31, 1994 and January 31, 1994 (incorporated herein by reference to the Puritan-Bennett Corporation Second Quarter Report, 1995). Condensed Consolidated Statements of Cash Flows (Unaudited) - Six months ended July 31, 1994 and 1993 (incorporated herein by reference to the Puritan- Bennett Corporation Second Quarter Report, 1995). REVIEW BY INDEPENDENT PUBLIC ACCOUNTANTS The condensed consolidated financial statements at July 31, 1994, and for the three month and six month periods then ended have been reviewed, prior to filing, by Ernst & Young LLP, the Company's independent auditors, and their report is included herein. 3 Notes to Condensed Consolidated Financial Statements (Unaudited) Note 1: Long-term Debt During the second quarter, the Company arranged through a private placement, $20 million, six-year final/four-year average maturity, unsecured promissory notes at an interest rate of 7.57%. This increase in long term debt violated a debt covenant in several of the Company's debt agreements requiring senior funded debt not to exceed 45% of net tangible assets. Waivers were obtained setting the maximum allowable amount of senior funded debt to 50% of net tangible assets through October 31, 1994. Proceeds from the notes were used to repay a portion of current notes payable. As a result, a shifting of liabilities from current to long term occurred curing, the default of the current ratio covenant (previously disclosed in the annual report to stockholders) agreed to under various long-term debt agreements. The Company must normally maintain a current ratio of 1.75, but the Company obtained a waiver to lower this ratio to 1.6 through January 31, 1995. The current ratio at July 31, 1994 was 2.35. Waivers were obtained through January 1995 for other restrictions agreed to in various long-term debt agreements. As a result, payments of dividends and purchases of treasury stock are restricted to a maximum of $1.7 million. After January 31, 1995, the most restrictive restricted payment covenant returns to the sum of $4.5 million, 75% of net income and 100% of net losses since June 30, 1988. The Company is in compliance with waiver requirements. 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations for the Three and Six Months Ended July 31, 1994, Compared to the Three and Six Months Ended July 31, 1993 RESULTS OF OPERATIONS (All dollars in thousands except where noted) NET SALES Net sales volume for the quarter ended July 31, 1994, increased 7.8% compared to the quarter ended July 31, 1993, and 7.2% on a year-to-date basis. The following tables show sales volume for the significant markets in which the Company operates:
PERCENT Q2 1995 Q2 1994 CHANGE ---------------------------- Home Care Markets $ 31,450 $ 27,054 16.2% Hospital/Physician Markets 45,743 44,900 1.9% Aviation Markets 6,800 5,960 14.1% -------- -------- Total Net Sales $ 83,993 $ 77,914 7.8% ======== ======== PERCENT YTD 1995 YTD 1994 CHANGE ---------------------------- Home Care Markets $ 60,782 $ 53,637 13.3% Hospital/Physician Markets 90,079 87,692 2.7% Aviation Markets 13,540 11,976 13.1% -------- -------- Total Net Sales $164,401 $153,305 7.2% ======== ========
Sales growth in the home care markets continues with revenues and orders up 16.2% and 28.1%, respectively, from Q2 last year and 13.3% and 20.8%, respectively on a year-to-date basis despite the late FY 1994 decision to exit the U.S. portable ventilator market. Two major clinical areas - home oxygen therapy and the diagnosis and treatment of adult sleep disorders contributed to this growth. As the size of the home oxygen therapy portion of this business continues to grow, the Company expects the rate of growth in the United States to slow but international growth to increase. The Company expects the diagnosis and treatment of adult sleep disorders to become an increasingly larger portion of its worldwide home care business. This new area is a relatively young and rapidly growing market. Hospital/Physician sales have flattened as the U.S. hospital market for the 7200(R) Series ventilator remains sluggish; however, international demand has continued to grow. The 5 level of interest in the Company's CliniVision(R) respiratory care management information system continues to expand and revenues are growing. CliniVision orders increased significantly in the second half of FY 1994 as hospitals increasingly focused on this system as a valuable solution to their cost- containment challenge and as the Company continued to enhance the CliniVision system. More than 100 systems have now been installed. In total, the Company expects the hospital/physician market revenues to be flat in FY 1995. The Company has resolved to improve the profitability of this part of its business within the context of lower revenue expectations than the Company has had in the past. The aviation portion of the Company's business is experiencing growth in revenues and orders, up 13.1% and 12.7%, respectively on a year-to-date basis. Revenues were up 14.1% from second quarter levels last year; however, quarterly order comparisons are distorted as a result of significant Airborne Closed Circuit Television (ACCTV(TM)) orders received in the second quarter of FY94. The overall increase in the Company's aviation business is due in large part, although not entirely, to a growing interest in the offerings of the ACCTV operation. While the Company expects revenue growth in Home Care and Aero Systems over second quarter levels, overall third quarter revenue could be flat to slightly up in comparison to second quarter revenue. Historically, third quarter incoming order rates have been slow followed by stronger order rates in the fourth quarter. This historical trend coupled with continuing stagnation in the U.S. market for the 7200 Series ventilator could offset the expected growth in Home Care and Aero Systems. INTERNATIONAL SALES GROWTH The following tables reflect the amount of sales and operating profits from the United States and foreign geographic segments:
NET SALES PERCENT Q2 1995 Q2 1994 CHANGE ----------------------------- U.S. Operations $ 65,480 $ 66,332 (1.3%) Foreign Operations 18,513 11,582 59.8% -------- -------- Total Net Sales $ 83,993 $ 77,914 7.8% ======== ======== NET SALES PERCENT YTD 1995 YTD 1994 CHANGE ----------------------------- U.S. Operations $126,668 $129,679 (2.3%) Foreign Operations 37,733 23,626 59.7% -------- -------- Total Net Sales $164,401 $153,305 7.2% ======== ========
6
OPERATING PROFIT PERCENT Q2 1995 Q2 1994 CHANGE ------------------------------ U.S. Operations $ 2,144 $2,628 (18.4%) Foreign Operations 4,175 (252) 1,756.7% ------- ------ Total Net Profit $ 6,319 $2,376 165.9% ======= ====== OPERATING PROFIT PERCENT YTD 1995 YTD 1994 CHANGE ------- ------ ------- U.S. Operations $ 3,688 $4,261 (13.4%) Foreign Operations 7,689 1,346 471.2% ------- ------ Total Net Profit $11,377 $5,607 102.9% ======= ======
The increase in foreign operations net sales and operating profit from Q2 1994 was primarily due to the addition of the SEFAM S.A. product line and a large increase in sales in Germany. The German operation was in a start-up environment during the comparable period of FY1994. The following tables reflect sales by customer location:
Q2 1995 Q2 1994 ---------------- ---------------- Customers Within the U.S. $ 56,130 66.8% $ 56,787 72.9% Customers Outside the U.S. 27,863 33.2% 21,127 27.1% -------- ----- -------- ----- Total Net Sales $ 83,993 100.0% $ 77,914 100.0% ======== ====== ======== ===== YTD 1995 YTD 1994 -------- -------- Customers Within the U.S. $107,506 65.4% $111,333 72.6% Customers Outside the U.S. 56,895 34.6% 41,972 27.4% -------- ----- -------- ----- Total Net Sales $164,401 100.0% $153,305 100.0% ======== ===== ======== =====
During the past decade, the Company's business profile has changed substantially from predominantly a supplier of life-support capital equipment to the United States hospital market to the home care market. Home care has been, and is expected to continue to be, the fastest growing part of the Company's business. Life-support products sold in the U.S. market will likely represent a smaller share of the Company's business in the future; a trend that does help lower the Company's U.S. regulatory and health care reform risks. In late January 1994, the Company finalized the previously announced acquisition of SEFAM S.A., the leading European supplier of diagnostic and therapeutic sleep disorder products, and its 80% owned Lit Dupont S.A. subsidiary, which manufactures wheelchair products. Over the past five years, the Company's home care business, which reached nearly $110 million in revenues in FY 1994 has achieved a compound annual revenue growth rate of over 22% worldwide - 31% internationally. The Company believes that the acquisition of SEFAM will help such growth trends continue. 7 GROSS PROFIT The gross profit percentage for Q2 1995 decreased .5% from Q2 1994 and 1.3% on a year-to-date basis. Gross profit was adversely affected by the higher costs associated with GMP compliance activities and by the continued weakness of the hospital market. These effects were partially offset by the purchase of SEFAM and Lit DuPont as well as the results of restructuring actions taken late in FY 1994.
PERCENT Q2 1995 Q2 1994 CHANGE ------------------------------ Gross Profit $35,647 $33,395 6.7% Gross Profit Percentage 42.4% 42.9% PERCENT YTD 1995 YTD 1994 CHANGE ------------------------------ Gross Profit $69,438 $66,613 4.2% Gross Profit Percentage 42.2% 43.5%
SELLING AND ADMINISTRATIVE EXPENSES Selling and administrative expenses for Q2 1995 remained relatively stable from Q2 1994. An increase from the acquisition of SEFAM S.A. and its 80% owned Lit Dupont S.A. subsidiary, in late FY 1994, and increased GMP related compliance activities were offset by the results of restructuring actions taken in late FY 1994.
PERCENT Q2 1995 Q2 1994 CHANGE ---------------------------- Selling and Administrative Exp $24,364 $24,315 .2% PERCENT YTD 1995 YTD 1994 CHANGE ----------------------------- Selling and Administrative Exp $48,282 $47,753 1.1%
RESEARCH AND DEVELOPMENT EXPENSES Research and development expenses for the quarter and year-to-date have decreased approximately 26% over the prior comparable periods. The decrease resulted primarily from the elimination of the Intra-Arterial Blood Gas Monitoring product line. Research and development continues across all remaining product lines. 8
PERCENT Q2 1995 Q2 1994 CHANGE ----------------------------- Research and Development Exp $4,964 $ 6,704 (26.0%) PERCENT YTD 1995 YTD 1994 CHANGE ----------------------------- Research and Development Exp $9,779 $13,253 (26.2%)
OTHER (INCOME) EXPENSE Other income in Q2 1995 and the first six months of FY 1995 increased over the comparable periods of FY 1994 by $1,122 and $1,650, respectively. The increase is almost entirely attributable to foreign currency transaction gains. These gains arose from the weakening of the U.S. Dollar, the Company's functional currency, in the markets in which the Company is doing business. Q2 1995 Q2 1994 ------------------ Other (Income) Expense ($ 369) $ 753 YTD 1995 YTD 1994 ------------------ Other (Income) Expense ($1,181) $ 469 RESTRUCTURING CHARGES A number of market and regulatory developments converged to make FY 1994 a particularly challenging one for the Company as a whole. As a result, the Company took a number of major actions in FY 1994 to reposition itself for the future including: restructured the hospital ventilator portion of its business; consolidated its aviation business to three facilities from four; closed its Boulder, Colorado facility and transferred the manufacture of the portable ventilators made there to its ISO (International Standards Organization) 9002- certified facility in the Republic of Ireland; planned the shutdown and offered for sale the FOxS operation. As of July 31, 1994, approximately $6.2 million remained in accrued liabilities representing expected severance, cancellation penalties, remaining facility lease payments, and other costs necessary to complete the restructuring plan in an orderly and effective manner. This amount is expected to be disbursed primarily in the third and fourth quarters of FY 1995. No buyer was found for the FOxS operation and the shutdown will be completed early in the third quarter. 9 PROVISION FOR INCOME TAXES The Q2 1995 tax rate of 20.0% is less than the U.S. statutory rate of 35% due to a greater proportion of total income being taxed at the lower international rate of 10%. The Q2 1994 tax benefit was 42.7% due primarily to a $9.0 million U.S. restructuring charge. The Company has a tax valuation allowance of $15.7 million as required by SFAS No. 109. The realization of this deferred tax benefit depends on the Company's ability to generate sufficient taxable income in the future (approximately $20 million). Approximately 80% of the Company's total temporary differences are expected to reverse in the next two years. As a result of the restructuring taken during FY 1994, the Company believes it is well positioned to take advantage of this tax benefit in the future. If the Company is unable to generate sufficient taxable income in the future, increases in the valuation allowance will be required through a charge to expense. However, if the Company achieves sufficient profitability to use all of the deferred tax benefit, the valuation allowance will be reduced through a credit to expense. FINANCIAL CONDITION WORKING CAPITAL The ratio of current assets to current liabilities is 2.4 at July 31, 1994, up from 1.6 at January 31, 1994. Working capital increased, from $51.9 million to $79.2 million. The primary reasons for the increase include a $16.9 million decrease in notes payable as a result of new long-term notes completed late in Q2 1995 and an approximate $8.1 million decrease in other accrued expenses; primarily accrued restructuring expenses that were paid in Q1 and Q2 1995. LIQUIDITY AND CAPITAL RESOURCES Net cash and cash equivalents provided by operating activities decreased from July 31, 1993 due to several factors. Net income of $7,968 for year-to-date FY95 increased by approximately $13.8 million over the year-to-date loss for FY94. This increase in cash and cash equivalents was offset by a $14.9 million swing in restructuring charges. This swing was comprised of a $9.0 million increase in year-to-date 1994 accrued restructuring charges versus a $5.9 million reduction in this accrual in FY95. There was a $1.7 million payout from the deferred compensation plan in Q1 1995 for which there was no comparable event in FY 1994. The change in prepaid expenses and other current assets reflects a sale of marketable equity securities ($2.2 million) for which there was no comparable sale in FY 1994. The increase in accounts receivable is a reflection of higher sales volume as well as an increase in the proportion of non U.S. sales, which have a longer collection period than U.S. sales, to total sales (27.4% as of year-to-date 1994 versus 34.6% as of year-to-date 1995). 10 Net cash and cash equivalents used in investing activities have decreased when compared to year-to-date 1994. This decrease is due primarily to the acquisition of Hoyer Medizintechnik, $6.6 million was paid in Q1 1994 and a final payment of $2 million was paid in Q1 1995. An increase in proceeds from the sale of capital assets was offset by an increase in capital expenditures. Net cash and cash equivalents provided by financing activities have increased when compared to year-to-date 1994. Short term notes payable have been reduced by $16.9 million in year-to-date 1995 versus a $2.7 million increase in the comparable FY 1994 period. This reduction was offset by a $20 million increase in long-term debt in year-to-date 1995. These events, combined with minimal stock repurchases in year-to-date 1995 resulted in a generation of $2.2 million from financing activities in year-to-date 1995 versus $.4 million in the same period of the prior fiscal year. Long-term debt, excluding current maturities represents 35.3% of total capital (long-term debt plus stockholder's equity) at July 31, 1994, and 26.4% at January 31, 1994. At July 31, 1994, the Company had $35 million of unsecured bank lines-of-credit available, $10.7 million of which was used. HEALTH CARE REFORM In the United States, President Clinton has made clear his determination to reform this country's health care system. The two basic forces leading to reform are the desire to: (1) provide basic financial access (insurance coverage) to health care for all citizens, over 35 million of whom have only limited, if any, financial access today; and (2) contain health care expenditures, which now represent 14% of the economy and represent a sizable contributor to chronic federal and some state government deficits. The first desire, taken alone, would expand the health care system. The second desire, taken alone, would restrain the expansion of the health care system. What the balance will be between these two opposing desires remains to be seen. Clearly, it has proven easier over the years to expand financial access to health care than it has to contain health care spending. The Company would not be surprised if the same holds true in the future. In any event, the Company is devoted to developing respiratory products that make such significant contributions that they will continue to be necessary, not discretionary, parts of all developed health care systems. 11 Independent Accountants' Review Report The Board of Directors Puritan-Bennett Corporation We have reviewed the accompanying condensed consolidated balance sheet of Puritan-Bennett Corporation and subsidiaries as of July 31, 1994, the condensed consolidated statements of operations for the three-month and six-month periods ended July 31, 1994 and 1993, and the condensed consolidated statements of cash flows for the six-month periods ended July 31, 1994 and 1993. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, wich will be performed for the full year with the objective of expressing an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Puritan-Bennett Corporation as of January 31, 1994, and the related consolidated statements of operations, stockholders' equity, and cash flows for the year then ended (not presented herein) and in our report dated March 7, 1994, we expressed an unqualified opinion. During the year ended January 31, 1994, the Company changed its method of accounting for income taxes, postretirement benefits and postemployment benefits. The information set forth in the accompanying condensed consolidated balance sheet as of January 31, 1994, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/ Ernst & Young LLP ERNST & YOUNG LLP September 12, 1994 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. a. Exhibits Exhibits required by Item 601 of Regulation S-K are listed in the Exhibit Index which is incorporated herein by reference. b. Reports on Form 8-K There were no reports on Form 8-K filed for the three months ended July 31, 1994. 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PURITAN-BENNETT CORPORATION Registrant September 13, 1994 /s/Lee A. Robbins ----------------- Lee A. Robbins, Vice President, Controller-Chief Financial Officer (Principal Financial Officer, Chief Accounting Officer and duly authorized Officer to execute on behalf of registrant) 14 EXHIBIT INDEX Exhibits filed with Securities and Exchange Commission: (Number and description of exhibit) (10a) Pension Benefit Make Up Plan (10b) Second Amendment to the Supplemental Retirement Benefit Plan (10c) Employment Agreement Between the Company and John H. Morrow dated June 9, 1994 (10d) Management Incentive Bonus Plan A (10e) Management Incentive Bonus Plan B (11) Statement re: Computation of Per Share Earnings (15) Letter re: Unaudited Interim Financial Information (19) Puritan-Bennett Corporation Second Quarter Report, 1995 (27) Financial Data Schedules 15 EX-10.A 2 PENSION BENEFIT MAKE UP Exhibit 10a PURITAN-BENNETT CORPORATION PENSION BENEFIT MAKE UP PLAN ---------------------------- PURITAN-BENNETT CORPORATION (the "Sponsoring Employer") does hereby adopt and establish this Pension Benefit Make Up Plan (the "Make Up Plan" or "Plan"), effective January 1, 1994. WHEREAS, it is intended that this Make Up Plan shall constitute an "excess benefit plan" as defined in ERISA Section 3(36) and/or an unfunded plan maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees as referred to in ERISA Sections 201, 301 and 401; and WHEREAS, the Sponsoring Employer maintains a qualified defined benefit plan, the Restated Puritan-Bennett Pension Plan (the "Pension Plan"), and a qualified defined contribution plan, the Restated Puritan-Bennett Retirement Savings & Stock Ownership Plan (the "Savings Plan"), for the benefit of eligible employees; and WHEREAS, the retirement or pension benefits of certain management or highly compensated employees under the Pension Plan will or may be limited or restricted by the application of the rules of Code Sections 415 and/or 401(a)(17), and by certain provisions of the Pension Plan; and WHEREAS, it is the purpose of this Make Up Plan to provide for those persons whose benefits under the Pension Plan would be so limited or restricted, a supplemental retirement or pension benefit equal to the difference between the benefit provided by the Pension Plan and the benefit which the Pension Plan would have provided except for the restrictions of Code Sections 415 and 401(a)(17) and similar limiting provisions of the Pension Plan; and WHEREAS, with the modifications herein provided, the Pension Plan is hereby incorporated by reference as a part of this Make Up Plan. ARTICLE I DEFINITIONS ----------- Unless separately defined in this Make Up Plan, terms which are defined in the Pension Plan shall, when used in this Plan, have the same meaning given them in the Pension Plan. The following terms shall have the meanings set forth below when used in this Plan: 2.01. Beneficiary: Any person or persons (including a trust or other entity) designated by a Member (in such form or manner as may be prescribed by the Committee) to receive a Death Benefit payable hereunder if such person or persons survive the Participant. 2 2.02. Board of Directors: The Board of Directors of Puritan-Bennett Corporation, the Sponsoring Employer. 2.03. Member (or Participant): An Employee who has become a Member of this Make Up Plan in accordance with the provisions of Article III hereof. 2.04 Pension (or Supplemental Pension): Except where specific reference is made to the Pension benefits payable under the Pension Plan, the monthly amounts which are payable to a person who is entitled to receive benefits under this Make Up Plan. 2.05. Pension Plan: The Restated Puritan-Bennett Pension Plan, as in effect on the effective date of this Make Up Plan or as thereafter amended to comply with the Tax Reform Act of 1986 or subsequent laws relating to the qualification of pension plans, and applicable regulations and rulings issued thereunder. ARTICLE II MODIFICATIONS OF PENSION PLAN ----------------------------- For purposes of interpreting this Make Up Plan and determining the benefits of a Member hereunder, the following provisions of the Pension Plan (which is otherwise incorporated by reference and constitutes a part of this Plan) shall be deleted from and have no application to this Make Up Plan: (a) the sentence or portion of 3 Section 2.14 (the definition of "Compensation") relating to limitations imposed by Code Section 401(a)(17); (b) Section 2.38; (c) Section 3.01; (d) Section 4.01; (e) Sections 4.07 and 4.08 relating to limitations imposed by Code Section 415; (f) Section 6.06; (g) Sections 7.03 and 7.07; (h) Article VIII; (i) Section 9.01; (j) Sections 10.02 and 10.04; (k) Article XI; (l) Section 12.02; (m) Article XIII imposing certain restrictions on the benefits of highly compensated participants in the event of early plan termination; (n) Article XIV; and (o) Article XV. ARTICLE III MEMBERSHIP ---------- The Members of this Make Up Plan shall be those Participants in the Pension Plan whose retirement or pension benefits under the Pension Plan are or will be limited or restricted by application of the rules of Code Section 415 and/or 401(a)(17) or by Article XIII of the Pension Plan. Membership shall continue so long as the Member shall continue to be a Participant in the Pension Plan. 4 ARTICLE IV SUPPLEMENTAL PENSION BENEFITS ----------------------------- 4.01. Normal or Late Retirement Supplemental Pension: A Member whose employment with an Employer or Affiliate terminates (other than by reason of death) on or after his Normal Retirement Age shall be entitled to a Normal or Late Retirement Supplemental Pension, as the case may be, the Benefit Commencement Date of which shall be the first day of the calendar month coinciding with or next following such termination of employment. The amount of the annual Normal or Late Retirement Supplemental Pension, payable in the basic single life form, shall be the amount determined under subsection (a) below, less or reduced by the amount determined under subsection (b) below: (a) A percentage of the Member's Average Monthly Compensation, plus a percentage of the Member's Average Monthly Compensation in excess of his Covered Compensation, if any, with the total multiplied by the Member's Years of Credited Service (not to exceed thirty (30)). Such percentages shall be as follows: (i) If the Member's Social Security Retirement Age is sixty-five (65), 1.05% of Average Monthly Compensation and .75% of Average Monthly Compensation in excess of Covered Compensation. 5 (ii) If the Member's Social Security Retirement Age is sixty- six (66), 1.1% of Average Monthly Compensation and .7% of Average Monthly Compensation in excess of Covered Compensation. (iii) If the Member's Social Security Retirement Age is sixty- seven (67), 1.15% of Average Monthly Compensation and .65% of Average Monthly Compensation in excess of Covered Compensation. (b) The amount of the Member's Normal or Late Retirement Pension, payable in the basic single life form, determined pursuant to Section 4.01 of the Pension Plan. In further explanation of the foregoing, the Supplemental Pension benefits of a Member under this Make Up Plan (prior to reduction by the amount of the Member's Pension benefits under the Pension Plan) shall be calculated in the same manner as the Pension benefits of such Member under the Pension Plan, but without restriction or limitation on the amount of such Supplemental Pension resulting from the application of the Code Section 401(a)(17) compensation limitations or the Code Section 415 maximum benefit limitations, and without application of the early termination limitations of Article XIII of the Pension Plan. 6 4.02. All provisions relating to the time and the manner or form of payment of Pension benefits under the Pension Plan shall be applicable to and control the determination of the time and the manner or form of payment of Supplemental Pension benefits under this Make Up Plan. ARTICLE V AMENDMENT AND TERMINATION ------------------------- 5.01. Amendment: The Sponsoring Employer reserves the right to amend this Plan at any time and from time to time; provided that no such amendment shall reduce the Accrued Benefit or defer the time of payment of the Pension benefits of any Member hereunder. 5.02. Termination: The Sponsoring Employer, by action of the Board of Directors, may terminate this Plan (cease the further accrual of benefits) at any time; provided, however, that in the event of termination, each Member's Accrued Benefit shall become fully vested and nonforfeitable, and the date of such Plan termination shall be considered the Benefit Commencement Date for purposes of payment of Members' Supplemental Pension benefits hereunder. 7 IN WITNESS WHEREOF, Puritan-Bennett Corporation has caused this Pension Benefit Make Up Plan to be executed this 9th day of June, 1994. PURITAN-BENNETT CORPORATION By: /s/ Burton A. Dole, Jr. -------------------------------- President (SEAL) ATTEST: /s/ Daniel C. Weary - - -------------------------- Secretary 8 EX-10.B 3 2ND AMDMT SUPP RETRMNT Exhibit 10b SECOND AMENDMENT PURITAN-BENNETT CORPORATION SUPPLEMENTAL RETIREMENT BENEFIT PLAN ------------------------------------ THIS AMENDMENT to the Puritan-Bennett Corporation Supplemental Retirement Benefit Plan (the "Plan") is made this 9th day of June, 1994 by Puritan-Bennett Corporation, a Delaware corporation (hereinafter referred to as the "Corporation"). WHEREAS, the Corporation has adopted the Plan effective as of September 1, 1985, which provides benefits that supplement benefits provided under the Restated Puritan-Bennett Pension Plan (the "Qualified Plan"); and WHEREAS, the Plan was heretofore amended by a First Amendment thereto effective on or about September 1, 1993; and WHEREAS, the Corporation and the Members of the Plan have agreed to the amendment of the Plan in the manner set forth below in order further offset benefits by benefits payable under the new Puritan-Bennett Corporation Pension Benefit Make Up Plan (the "Make Up Plan"), which was effective January 1, 1994. NOW, THEREFORE, the Plan is amended effective January 1, 1994 as follows: 1. Section 4.01(a) is divided into two subsections and amended to read in its entirety as follows: Section 4.01(a)(i). The amount payable shall be reduced by one-hundred percent (100%) of the monthly income or Pension benefits payable or which would be payable to the Member under the Qualified Plan in the form of a single life annuity commencing as of the date of the Member's termination of employment. Section 4.01(a)(ii). The amount payable shall also be reduced by one-hundred percent (100%) of the Supplemental Pension benefits payable or which would be payable to the Member under the Puritan- Bennett Corporation Pension Benefit Make Up Plan in the form of a single life annuity commencing as of the date of the Member's termination of employment. IN WITNESS WHEREOF, this Amendment is adopted as of the date set forth above. PURITAN-BENNETT CORPORATION ATTEST: "Corporation" By: /s/ Daniel C. Weary By Burton A. Dole, Jr. ---------------------------------- ---------------------------------- Title: Secretary Title: President Date: June 9, 1994 CONSENT OF AGREEMENT OF MEMBERS ------------------------------- In consideration of their eligibility for participation in the Puritan- Bennett Corporation Pension Benefit Make Up Plan which was effective January 1, 1994, the undersigned Members of the Puritan-Bennett Corporation Supplemental Retirement Benefit Plan do hereby consent and agree to the terms and provisions of the Second Amendment to the said Supplemental Retirement Benefit Plan. /s/ Burton A. Dole, Jr. ---------------------------------------- Burton A. Dole, Jr. /s/ John H. Morrow ---------------------------------------- John H. Morrow -2- EX-10.C 4 EMPLYMT AGREMNT CO-MORROW Exhibit 10c June 9, 1994 Mr. John H. Morrow Executive Vice President Puritan-Bennett Corporation 9401 Indian Creek Parkway Overland Park, Kansas 66225 Dear Mr. Morrow: In view of your position as Executive Vice President and Chief Operating Officer of Puritan-Bennett Corporation (the "Company") and in consideration of your agreement to continue serving in this or some mutually agreeable capacity, the Board of Directors (the "Board") of the Company has approved the commitment by the Company to provide you ("Employee") with certain benefits during your employment and in the event of termination of your employment for Good Reason, if by you, and other than for Cause, if by the Company. This letter agreement (the "Agreement") establishes the terms and conditions of your continued employment by the Company, including your rights to receive certain payments and benefits during and after your employment by the Company. 1. Certain Definitions. ------------------- 1.1 Cause. "Cause" means (a) the Employee's willful violation of any reasonable rule or direct order of the Board or the Company's Chief Executive Officer ("CEO"), which, after written notice to do so, the Employee fails to make reasonable efforts to correct within a reasonable time, or (b) conviction of a crime, or entry of a plea of nolo contendere with regard to a crime, involving actual moral turpitude or dishonesty of or by the Employee, or (c) drug or alcohol abuse on Company premises or at a Company sponsored event, or (d) the Employee's material violation of any provision of this Agreement, which, after written notice to do so, the Employee fails to make reasonable efforts to correct within a reasonable time. "Cause" shall not include any matter other than these specified in (a) through (d) above, and without limiting the generality of the foregoing statement, Cause shall not include (x) any charge or conviction of a crime, or entry of a plea of nolo contendere with regard to a crime, under the Federal Food, Drug, and Cosmetic Act, as amended, or any successor statute thereto (the "Act"), or (y) the imposition or attempt to impose upon the Employee, or upon any operation, asset, product or activity of the Company, of any other sanction or remedy under the Act, including without limitation civil money penalties, warning letters, injunctions, repairs, replacements, Mr. John H. Morrow June 9, 1994 Page 2 refunds, recalls or seizures, if the Employee acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company. 1.2 Good Reason. "Good Reason" means (a) breach by the Company or any successor company of any of the provisions of this Agreement not corrected within ninety (90) days after written notice to the Company thereof, or (b) any of the following if the same shall occur within two years after a Change of Control: (i) reduction of the Employee's base salary, management bonus percentage or other compensation, as in effect immediately prior to the Change of Control, (ii) failure to continue in effect any medical, dental, accident, or disability plan in which the Employee is entitled to participate immediately prior to the Change of Control and failure to provide plans with substantially similar benefits (except that employee contributions may be raised to the extent of any cost increases imposed by third parties) or any action by the Company which would adversely affect the Employee's participation or reduce the Employee's benefits under any of such plans, (iii) material reduction in Employee's job responsibilities, (iv) material reduction of Employee's title or position, (v) Employee shall be requested to relocate to an office outside of the greater Kansas City metropolitan area, or (vi) failure or refusal of any successor company to assume the Company's obligations under this Agreement. 1.3 Change of Control. A "Change of Control" shall be deemed to have occurred at any of the following times: 1.3.1 Upon the acquisition (other than from the Company) by any person, entity or "group," within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 (the "Exchange Act") (excluding, for this purpose, the Company or its affiliates, or any employee benefit plan of the Company or its affiliates which acquires beneficial ownership of voting securities of the Company) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of either the then outstanding shares of common stock of the Company or the Combined Voting Power of the Company's then outstanding voting securities. "Combined Voting Power" means the combined voting power of the Company's then outstanding voting Mr. John H. Morrow June 9, 1994 Page 3 securities generally entitled to vote in the election of directors. 1.3.2 At the time individuals who, as of the date hereof, constitute the Board (as of the date hereof, the "Incumbent Board") cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of the Company, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) shall be, for purposes of this subsection 1.3.2, considered as though such person were a member of the Incumbent Board; or 1.3.3 Upon the approval by the Shareholders of the Company of a reorganization, merger, consolidation (in each case, with respect to which persons who were the shareholders of the Company immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than 50% of the Combined Voting Power of the reorganized, merged or consolidated company's then outstanding voting securities) or a liquidation or dissolution of the Company or of the sale of all or substantially all of the assets of the Company; or 1.3.4 The occurrence of any other event which the Incumbent Board in its sole discretion determines constitutes a Change of Control. 1.4 Normal Retirement Date. "Normal Retirement Date" shall mean the earliest date (currently, the Employee's 65th birthday) upon which the Employee is eligible to retire from the Company, and commence receiving full retirement benefits under the Company's then applicable retirement plan. Mr. John H. Morrow June 9, 1994 Page 4 1.5 Employment Termination Date. The date of delivery of any notice of termination pursuant to Section 2.5 shall be the "Employment Termination Date." 1.6 Continued Payment Period. "Continued Payment Period" shall have the meaning set forth in Section 3.1(a). 2. Benefits and Duties During Employment; Termination of Employment. ---------------------------------------------------------------- 2.1 Base Salary. Your current annual base salary is $230,000, payable in 24 equal semi-monthly amounts, subject to required withholdings. Your base salary will be reviewed and may be adjusted annually. Your base salary will not be reduced from the current level or from any future, higher levels without your written concurrence, unless such reduction is in connection with your disability and in accordance with the Company's established disability income protection plan. 2.2 Management Bonus. For the fiscal year ending January 31, 1995, your target bonus is 40% of your annual base salary under the Company's Management Incentive Bonus Plan ("MIB Plan"). Your target bonus percentage under the MIB Plan will not be reduced from the current level or from any future, higher levels without your written concurrence, unless such reduction is in connection with your disability and in accordance with the Company's established disability income protection plan. The Company may modify the MIB Plan in the future; provided that in the event of any such modification, the Company will use reasonable efforts to provide you with a bonus opportunity under the modified plan that is equivalent to your opportunity under the current MIB Plan. 2.3 Other Employee Benefits. You will continue to be eligible for all employee benefits generally available to employees of the Company, and to the special benefit programs in which you are currently participating, or in which you are hereafter eligible to participate. These special benefits include but are not limited to: 2.3.1 Supplemental Retirement Benefit Plan, adopted September 1, 1985, as amended on August 10, 1993, and as further amended on June 9, 1994, as the same may be further amended from time to time by mutual agreement of the Employee and the Company. Mr. John H. Morrow June 9, 1994 Page 5 2.3.2 Company Automobile, including reimbursement for automobile expenses. 2.3.3 Shadow Glen Golf Club Membership, including reimbursement for monthly dues, special assessments and expenses incurred in connection with business usage of club services and facilities. You may direct the Company to transfer the ownership of this membership to you, or to pay to you an amount equal to the original acquisition cost of such membership, by giving notice to the Company at any time within three months after the Employment Termination Date. 2.3.4 Life insurance and income tax and estate planning services, subject to currently established annual limits. 2.4 Limitation on Outside Activities. You agree to devote your full business time and efforts to the rendition of such services to the Company as may be designated by the Company, subject, however, to temporary illness and customary vacations. You will at all times be subject to the direction and supervision of the CEO. You may devote a reasonable amount of time to civic and community affairs but shall not perform services during the term of your employment for any other business organization in any capacity without the prior consent of the CEO. 2.5 Employment Termination. Your employment with the Company shall continue until either you or the Company give written notice to the other of termination of your employment. 3. Rights upon Termination of Employment. ------------------------------------- 3.1 Rights upon Termination by Company other than for Cause, or by Employee for Good Reason. If the Company terminates your employment other than for Cause prior to your Normal Retirement Date, or if you terminate your employment for Good Reason prior to your Normal Retirement Date, then the Company shall have the following obligations to you: (a) During the applicable Continued Payment Period, the Company shall continue to pay to you on an annual basis your annual base salary in effect immediately prior the Employment Termination Date plus the annual average of your incentive bonus payments under the MIB Plan or Mr. John H. Morrow June 9, 1994 Page 6 any successor thereto with respect to the three full fiscal years immediately preceding the Employment Termination Date (the "Average Annual Incentive Payment"), such amounts to be computed without regard to any reductions which may have occurred in breach of this Agreement or following a Change in Control. Such payments shall be made in equal installments on a semi-monthly basis, and shall be subject to all required withholdings. The Continued Payment Period shall commence on the Employment Termination Date, and shall be two years if the Employment Termination Date occurs before the first anniversary of this Agreement. The Continued Payment Period applicable hereunder shall be increased by three months on each anniversary of the date of this Agreement which occurs prior to the Employment Termination Date, provided, that the Continued Payment Period shall not exceed three years. (b) Within 90 days following the Employment Termination Date, the Company shall pay to you, subject to required withholdings, a one-time bonus equal to the product of (i) the fraction of a full year represented by the period from the beginning of the fiscal year to the Employment Termination Date, and (ii) the Average Annual Incentive Payment. No other management incentive payment or bonus will be payable with respect to the fiscal year in which the Employment Termination Date occurs. (c) As soon as practical following the Employment Termination Date, the Company shall will pay to you the market value, as of close of business on the Employment Termination Date, of any unvested restricted stock awarded to you, subject to required withholdings. 3.2 Death Benefits. If you are terminated by the Company other than for Cause or terminate your employment for Good Reason, and thereafter you die during the applicable Continued Payment Period, the Company shall be obligated to pay to your spouse, if surviving, and otherwise to your estate, the amounts to which you would have been entitled under Section 3.1 had you survived. 3.3 No Obligation To Mitigate. You shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise, nor shall the amount of any payment provided for under this Agreement be reduced by any compensation earned by you as the result of employment by another employer after the Employment Termination Date, or otherwise. Mr. John H. Morrow June 9, 1994 Page 7 3.4 Other Rights. The provisions of this Agreement, and any payment provided for hereunder, shall not reduce any amounts otherwise payable, or in any way diminish your existing rights or rights which would accrue solely as a result of the passage of time, under any benefit or incentive plan, employment agreement or other contract, plan or arrangement. As soon as practical following the Employment Termination Date, you will receive cash payment(s) for: (a) the value of your earned but unused vacation time as of the Employment Termination Date in accordance with then current Company policy, and (b) the value of your deferred compensation account in accordance with your then current payment election. 4. Successor to Company. The Company shall require any successor or assignee, whether direct or indirect, by purchase, merger, consolidation or otherwise to all or substantially all the business or assets of the Company, expressly and unconditionally to assume and agree to perform the Company's obligations under this Agreement, in the same manner and to the same extent that the Company would be required to perform if no such succession or assignment had taken place. In such event, the term "Company," as used in this Agreement, shall mean the Company and any successor or assignee to the business or assets which by reason hereof becomes bound by the terms and provisions of this Agreement. 5. Non-Competition. During your employment and, if applicable, during the Continued Payment Period under Section 3.1, you agree that you will not directly or indirectly compete with the Company, or engage in, or act as an officer, director, employee, or agent of any person or entity that is engaged in, any business in which the Company is engaged as of the Employment Termination Date, without the written approval of the CEO. The foregoing shall not prohibit you from investing in any securities of a corporation whose securities, or any of them, are listed on a national securities exchange or traded in the over-the-counter market so long as you shall own less than 3% of the outstanding voting stock of such corporation. 6. Confidentiality. During your employment and at all times thereafter, you will not divulge to anyone or use for your own benefit or the benefit of any other person or entity any information concerning the Company, its businesses, operations, products, plans, employees, or otherwise, including without limitation trade secrets and other proprietary information, except for information that has been published by or with the consent of the Company and is as a Mr. John H. Morrow June 9, 1994 Page 8 result thereof generally available to the public, or information reasonably required by you for the preparation of personal tax returns. 7. Miscellaneous. ------------- 7.1. No Assignment. No benefit hereunder shall be subject to anticipation, alienation, sale, transfer, assignment, pledge, encumbrances or charge, and any attempt to do so shall be void. 7.2 Notices. All notices hereunder shall be in writing, and shall be delivered in person, by facsimile or by certified mail-return receipt requested. Notices shall be delivered as follows: If to the Company: Chief Executive Officer Puritan-Bennett Corporation 9401 Indian Creek Parkway Overland Park, Kansas 66225 If to the Employee: Mr. John H. Morrow 10231 Catalina Overland Park, Kansas 66207 Either party may change its address for notice by giving notice to the other party of a new address in accordance with the foregoing provisions. 7.2 Governing Law. This Agreement shall be governed by the laws of the State of Kansas. 7.3 Disputes. In the event of any dispute between the Company and Employee arising out of this Agreement, the Company's then current Alternative Dispute Resolution Procedure will be followed (a copy of the current procedure is attached hereto) and the prevailing party shall be entitled to recover its reasonable attorneys' fees and expenses incurred in connection with the enforcement of its rights hereunder. Mr. John H. Morrow June 9, 1994 Page 9 7.4 Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. 7.5 Descriptive Headings. Descriptive headings of the several paragraphs of this Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. Please acknowledge your agreement to the foregoing Agreement by signing the enclosed counterpart of this letter and returning it to the Company. Very truly yours, PURITAN-BENNETT CORPORATION By: /s/ Burton A. Dole, Jr. ---------------------------- President Agreed to and accepted: /s/ John H. Morrow - - ----------------------------- JOHN H. MORROW EX-10.D 5 MANGMNT INC BONUS PLAN A Exhibit 10d PURITAN-BENNETT CORPORATION MANAGEMENT INCENTIVE BONUS PLAN A (Revised May 11, 1994) Puritan-Bennett's Incentive Bonus Plan A has been established to provide an incentive to corporate officers (other than the Vice President, Quality and Regulatory Affairs, who is covered by Plan B) to attain the highest performance possible each year. The Plan provides key managers with an opportunity to add to their total compensation if prescribed levels of return on assets are attained and/or if other important non-financial objectives are achieved. It is designed to retain and reward capable managers during periods of rebuilding and investment, as well as in times of high profitability, and to recognize extraordinary financial performance by groups/divisions and on a corporate basis. Details of the Plan follow: I. Management Incentive Bonus Calculation -------------------------------------- Bonus targets for each participant in the Plan will be established upon entrance of the participant into the Plan using the percentage of salary guidelines prescribed in Attachment A and reviewed periodically. To achieve the bonus target both the corporation and, in the case of group/divisional personnel, the individual group/division must attain a prescribed Return On Assets (ROA) as defined in Tables I and II. For FY 1995, the 1987 Corporate ROA 1 schedule and factors continue to apply except that the ROA schedule has been converted to an after-tax schedule at a 35% tax rate. This change has been made at both the Corporate and group/division levels in recognition of the fact that our decision to establish a manufacturing operation in Ireland tends to decrease pretax profits but decrease taxes also. For FY 1995, Table I is intended to be all inclusive (i.e., include Medicomp, any unused land or major building program in-progress assets, and the vacant El Segundo, California facility) except for FOxS income, expenses and assets, if any. Table II applies to the Bennett Group, which does not include FOxS, the Puritan Group, and Aero Systems, and is intended to exclude any unused land (Carlsbad, Rancho Bernardo, Cedar Creek, and Lenexa), or any major building program in-progress assets. For the corporation, ROA has been defined as the pre-bonus after-tax annual profit, excluding certain extraordinary gains and losses, divided by the sum of the ending total assets for each quarter, in turn divided by four. For the groups/divisions, ROA has been defined as the pre-bonus after-tax profit (after Corporate unallocated expenses, primarily interest, are allocated to the groups/divisions), excluding certain extraordinary gains and losses, divided by the ending sum of inventory, receivables, net fixed assets and Corporate assets (except 2 for unused land and buildings as discussed above) not directly identifiable to a particular group/division (which are allocated to such group/division) for each quarter, in turn divided by four. Such unidentifiable corporate assets are allocated based on the ratio of the sales of the respective group/division to total corporate sales. P-B Ireland assets will be allocated directly to the groups/divisions where such assets are so identifiable; unidentifiable Ireland assets will be allocated based upon the mix of Ireland inter-company sales. Corporate unallocated expenses are prorated among the groups/divisions based on their ratios of group/division assets to total corporate assets. The ROA formula calculation determines 70% of a participant's bonus. The remaining 30% is to be based upon objectives related to Business Improvement. For those individuals in a position to exert significant influence on FDA, FAA, and/or ISO control and compliance, FY 95 Business Improvement Objectives are to be primarily, if not entirely, control and compliance related. The ROA portion of each participant's bonus, where applicable, will be computed in accordance with the scales on Tables I and II. In the formula calculation, bonus payouts for all group/division participants will be weighted 40% based on Corporate ROA and 60% on 3 group/divisional ROA. For all others, the bonus computation will be based 100% on Corporate ROA. An example of a bonus calculation is set forth in Appendix I. The maximum bonus payment to each participant in the incentive bonus plan is limited to 100% of the current year's earned salary (excluding bonus). II. Administration -------------- a) Selection of Participants and Bonus Levels ------------------------------------------ Selection of participants and bonus levels will be established by the CEO and/or COO, subject to Board Compensation Committee and full Board approval for certain individuals. b) Determination of Bonus Award ---------------------------- Following the completion of the year-end audit, the actual bonus for each participant will be calculated according to: (i) the ROA formula, except in the case of Quality and Regulatory Affairs professionals; (ii) accomplishments against predetermined objectives. 4 The appraisal of performance against Business Improvement Objectives will be made for each participant by the immediate supervisor, jointly with the Vice President, Quality and Regulatory Affairs in the case of those participants in a position to exert significant influence on FDA and/or ISO control and compliance, and forwarded to the CEO and/or COO for preliminary approval, again subject to the final approval of the Board Compensation Committee and full Board approval for certain individuals. c) Approval by Compensation Committee ---------------------------------- The Compensation Committee of the Board of Directors will approve proposed bonuses for the Chairman, CEO, all Corporate Officers and all managers reporting to the CEO, whether or not they are Corporate Officers. The CEO and/or COO will approve all other proposed bonuses. The CEO/COO and Compensation Committee reserve the right to withhold some or all of the bonus otherwise earned under the financial/ROA formula portion of the plan in cases of significant shortcomings with respect to regulatory control and compliance objectives. Also, in the unlikely event that Return on Assets and Earnings Per Share exhibit significantly divergent trends, the Compensation Committee and CEO/COO reserve the right to modify the bonus program formula based upon actual results. 5 d) Communication ------------- Participants will be informed of their bonus target and performance levels required to achieve the incentive bonus during April of the February-January fiscal year. e) Other Considerations -------------------- 1. Bonus awards will be paid only to participants who are actively employed as of the bonus calculation date (January 31). 2. Profit for bonus determination will be inclusive of any changes in reserves, but will normally exclude any capital gains or losses and other unusual gains or losses such as proceeds of fire or casualty insurance. In cases of uncertainty the decision of the CEO will be final. 3. The addition of new participants, including new employees, to the plan during the year and the bonus levels for these individuals, must be approved initially by the CEO and/or COO and finally by the Compensation Committee. Any changes for participants, regardless of the reason, (promotion, change of responsibility, upgrading of salary in the same position) must be similarly approved. In any case approval must be obtained prior to communication to the individual concerned. 6 4. Unless otherwise approved by the CEO and/or COO, this Incentive Bonus Plan will be the sole Incentive Plan under which participants included in this Plan shall be compensated. 5. In the event of the routine retirement of a participant during the Management Incentive Bonus Plan year, the amount of bonus award will be based on the number of months worked as a percent of the full year and will reflect results of the full plan year. 7 PURITAN-BENNETT CORPORATION Management Incentive Bonus Target Level Category: (% of Salary) - - -------- ------------- A. Chairman, President 35 - 65% B. Senior Corporate Officers 25 - 50% C. Heads of substantial business units and other officers 15 - 30% D. Other key managers Up to 25% 8 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 Nor 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
9
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
10 APPENDIX I ILLUSTRATIVE EXAMPLE PARTICIPANT - - A BUSINESS UNIT - - PURITAN GROUP, BENNETT GROUP (ex. FOxS) & AERO SYSTEMS
BONUS BONUS PERCENT ALLOCATION X MULTIPLIER = EARNED ---------- ---------- ------- AFTER-TAX ROA FORMULA - - BUSINESS UNIT ROA = 42% 1.75/1/ 73.5% 13.8% CORPORATE ROA = 10.2% 28% 1.60/2/ 44.8% ---- 70% BUSINESS IMPROVEMENT OBJECTIVES 30% .75 22.5% ---- TOTAL 100% 140.8% X TARGET % OF SALARY 15% = PAYOUT % OF SALARY 21.12% X EARNED SALARY -- FY 1995 $70,000 = BONUS EARNED $14,784
- - ------------------------ /1/ From Table II. /2/ From Table I. 11 EX-10.E 6 MANGMNT INC BONUS PLAN B Exhibit 10e PURITAN-BENNETT CORPORATION MANAGEMENT INCENTIVE BONUS PLAN B (Revised May 11, 1994) Puritan-Bennett's Incentive Bonus Plan has been established to provide an incentive to key management employees to attain the highest performance possible each year. The Plan provides key managers with an opportunity to add to their total compensation if prescribed levels of return on assets are attained and/or if other important non-financial objectives are achieved. It is designed to retain and reward capable managers during periods of rebuilding and investment, as well as in times of high profitability, and to recognize extraordinary financial performance by groups/divisions and on a corporate basis. Details of the Plan follow: I. Management Incentive Bonus Calculation -------------------------------------- Bonus targets for each participant in the Plan will be established upon entrance of the participant into the Plan using the percentage of salary guidelines prescribed in Attachment A and reviewed periodically. Except for Quality and Regulatory Affairs professionals, to achieve the bonus target both the corporation and, in the case of group/divisional personnel, the individual group/division must attain a prescribed Return On Assets (ROA) as defined in Tables I and II. For FY 1995, the 1987 Corporate ROA schedule and factors continue to apply except that the ROA 1 schedule has been converted to an after-tax schedule at a 35% tax rate. This change has been made at both the Corporate and group/division levels in recognition of the fact that our decision to establish a manufacturing operation in Ireland tends to decrease pretax profits but decrease taxes also. For FY 1995, Table I is intended to be all inclusive (i.e., include Medicomp, any unused land or major building program in-progress assets, and the vacant El Segundo, California facility) except for FOxS income, expenses and assets, if any. Table II applies to the Bennett Group, which does not include FOxS, the Puritan Group, and Aero Systems, and is intended to exclude any unused land (Carlsbad, Rancho Bernardo, Cedar Creek, and Lenexa), or any major building program in-progress assets. For the corporation, ROA has been defined as the pre-bonus after-tax annual profit, excluding certain extraordinary gains and losses, divided by the sum of the ending total assets for each quarter, in turn divided by four. For the groups/divisions, ROA has been defined as the pre-bonus after-tax profit (after Corporate unallocated expenses, primarily interest, are allocated to the groups/divisions), excluding certain extraordinary gains and losses, divided by the ending sum of inventory, receivables, net fixed assets and Corporate assets (except for unused land and buildings as discussed above) not 2 directly identifiable to a particular group/division (which are allocated to such group/division) for each quarter, in turn divided by four. Such unidentifiable corporate assets are allocated based on the ratio of the sales of the respective group/division to total corporate sales. P-B Ireland assets will be allocated directly to the groups/divisions where such assets are so identifiable; unidentifiable Ireland assets will be allocated based upon the mix of Ireland inter-company sales. Corporate unallocated expenses are prorated among the groups/divisions based on their ratios of group/division assets to total corporate assets. Except for Quality and Regulatory Affairs professionals, the ROA formula calculation determines 50% of a participant's bonus. The remaining 50% is to be based upon objectives related to Business Improvement and this 50% is also subject to a multiplier that can range from 0 to 2.0 Full attainment of objectives would normally translate into a 1.0 multiplier. Exceeding objectives would normally translate into a multiplier higher than 1.0 and vice versa. For those individuals in a position to exert significant influence on FDA, FAA, and/or ISO control and compliance, FY 95 Business Improvement Objectives are to be primarily, if not entirely, control and compliance related. In the case of Quality and Regulatory Affairs professionals, 100% of the 3 participant's bonus is to be based upon objectives related to regulatory control and compliance-related Business Improvement Objectives. The ROA portion of each participant's bonus, where applicable, will be computed in accordance with the scales on Tables I and II. In the formula calculation, bonus payouts for all group/division participants will be weighted 40% based on Corporate ROA and 60% on group/divisional ROA. For all others, the bonus computation will be based 100% on Corporate ROA. An example of a bonus calculation is set forth in Appendix I. The maximum bonus payment to each participant in the incentive bonus plan is limited to 100% of the current year's earned salary (excluding bonus). II. Administration -------------- a) Selection of Participants and Bonus Levels ------------------------------------------ Selection of participants and bonus levels will be established by the CEO and/or COO, subject to Board Compensation Committee and full Board approval for certain individuals. 4 b) Determination of Bonus Award ---------------------------- Following the completion of the year-end audit, the actual bonus for each participant will be calculated according to: (i) the ROA formula, except in the case of Quality and Regulatory Affairs professionals; (ii) accomplishments against predetermined objectives. The appraisal of performance against Business Improvement Objectives will be made for each participant by the immediate supervisor, jointly with the Vice President, Quality and Regulatory Affairs in the case of those participants in a position to exert significant influence on FDA and/or ISO control and compliance, and forwarded to the CEO and/or COO for final approval, again subject to Board Compensation Committee and full Board approval for certain individuals. c) Approval by Compensation Committee ---------------------------------- The Compensation Committee of the Board of Directors will approve proposed bonuses for the Chairman, CEO, all Corporate Officers and all managers reporting to the CEO, whether or not they are Corporate Officers. The CEO and/or COO will approve all other proposed bonuses. The CEO/COO and Compensation Committee reserve the right to withhold some or all of the bonus otherwise earned under the financial/ROA formula 5 portion of the plan in cases of significant shortcomings with respect to regulatory control and compliance objectives. Also, in the unlikely event that Return on Assets and Earnings Per Share exhibit significantly divergent trends, the Compensation Committee and CEO/COO reserve the right to modify the bonus program formula based upon actual results. d) Communication ------------- Participants will be informed of their bonus target and performance levels required to achieve the incentive bonus during April of the February-January fiscal year. e) Other Considerations -------------------- 1. Bonus awards will be paid only to participants who are actively employed as of the bonus calculation date (January 31). 2. Profit for bonus determination will be inclusive of any changes in reserves, but will normally exclude any capital gains or losses and other unusual gains or losses such as proceeds of fire or casualty insurance. In cases of uncertainty the decision of the CEO will be final. 3. The addition of new participants, including new employees, to the plan during the year and the bonus levels for these individuals, must be approved by the CEO and/or COO. Any changes for participants, regardless of the reason, (promotion, change of responsibility, upgrading of salary in the same 6 position) must also be approved by the CEO and/or COO. In any case approval must be obtained prior to communication to the individual concerned. 4. Unless otherwise approved by the CEO and/or COO, this Incentive Bonus Plan will be the sole Incentive Plan under which participants included in this Plan shall be compensated. 5. In the event of the routine retirement of a participant during the Management Incentive Bonus Plan year, the amount of bonus award will be based on the number of months worked as a percent of the full year and will reflect results of the full plan year. III. Special Award Program --------------------- A special award program may be established to provide one-time awards to outstanding and deserving employees not participating in the Management Incentive Bonus Plan. The amount available for such awards shall be limited to 10% of the maximum awards available to participants of the Management Incentive Bonus Plan, under the formula relating to that plan. The CEO and/or COO shall approve all special awards. 7 PURITAN-BENNETT CORPORATION Management Incentive Bonus Target Level Category: (% of Salary) - - -------- ------------- A. Chairman, President 35 - 65% B. Senior Corporate Officers 25 - 50% C. Heads of substantial business units and other officers 15 - 30% D. Other key managers Up to 25% 8 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 Nor 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
9 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
10 APPENDIX I ILLUSTRATIVE EXAMPLE PARTICIPANT - - A BUSINESS UNIT - - PURITAN GROUP, BENNETT GROUP (ex. FOxS) & AERO SYSTEMS
BONUS BONUS PERCENT ALLOCATION X MULTIPLIER = EARNED ---------- ---------- ------ AFTER-TAX ROA FORMULA - - BUSINESS UNIT ROA = 30% 1.75/1/ 52.5% 13.8% CORPORATE ROA = 10.2% 20% 1.60/2/ 32.0% --- 50% BUSINESS IMPROVEMENT OBJECTIVES 50% 1.00 50.0% --- ----- TOTAL 100% 134.5% X TARGET % OF SALARY 15% = PAYOUT % OF SALARY 20.175% X EARNED SALARY -- FY 1995 $70,000 = BONUS EARNED $14,122.50
- - -------------------- /1/ From Table II. /2/ From Table I. 11 EX-11 7 COMPUTE SHARE EARNINGS EXHIBIT 11 STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
QUARTER ENDING SIX MONTHS ENDING JULY 31 JULY 31 ---------------------- ------------------------ 1994 1993 1994 1993 ---------------------- ------------------------ PRIMARY Weighted average shares outstanding at end of period 12,502,261 11,902,661 12,455,951 11,917,631 Assuming exercise of options reduced by the number of shares which could have been purchased with the proceeds from exercise 45,431 0 50,886 0 ----------------------- ----------------------- Shares outstanding for computation of per share earnings 12,547,692 11,902,661 12,506,837 11,917,631 ======================= ======================= Net income $4,244,000 $(4,963,000) $7,968,000 $(5,869,000) ======================= ======================= Primary earnings per share $0.34 $(0.42) $0.64 $(0.49) ======================= ======================= FULLY DILUTED Weighted average shares outstanding at end of period 12,502,261 11,902,661 12,455,951 11,917,631 Assuming exercise of options reduced by the number of shares which could have been purchased with the proceeds from exercise 45,431 0 56,099 20,529 ----------------------- ----------------------- Shares outstanding for computation of per share earnings 12,547,692 11,902,661 12,512,050 11,938,160 ======================= ======================= Net income $4,244,000 $(4,963,000) $7,968,000 $(5,869,000) ======================= ======================= Fully diluted earnings per share $0.34 $(0.42) $0.64 $(0.49) ======================= ======================= REPORTED EARNINGS PER SHARE $0.34 $(0.41) $0.64 $(0.49) ======================= =======================
The company does not meet the 3% dilution test contained in Accounting Principles Board Opinion #15, therefore disclosure of diluted earnings per share on the face of the income statements is not required. EX-15 8 UNAUDITED INTRM FINCL INFO EXHIBIT 15 (Ernst & Young LLP Letterhead) Letter Regarding Unaudited Interim Financial Information The Board of Directors Puritan Bennett Corporation We are aware of the incorporation by reference in the following registration statements of Puritan-Bennett Corporation: No. 2-98132 on Form S-8 and Form S-3 dated June 23, 1985, No. 33-6804 on Form S-3 dated July 24, 1986, No. 33-26495 on Form S-8 and Form S-3 dated January 31, 1989, No. 33-36497 on Form S-8 dated August 21, 1990, and No. 33-67634 on Form S-8 dated August 18, 1993, of our report dated September 12, 1994 relating to the unaudited condensed consolidated interim financial statements of Puritan-Bennett Corporation and subsidiaries which are included in its Form 10-Q for the quarter ended July 31, 1994. Pursuant to Rule 436(c) of the Securities Act of 1933, our reports are not part of the registration statement prepared or certified by accountants within the meaning of Section 7 or 11 of the Securities Act of 1933. /s/ Ernst & Young ERNST & YOUNG LLP September 12, 1994 EX-19 9 PURITAN-BENNETT 2ND QTR Exhibit 19 LETTER TO OUR STOCKHOLDERS Puritan-Bennett Corporation reported earnings of $4,244,000 or $.34 per share on revenues of $83,993,000 and orders of $82,140,000 for the second quarter ended July 31, 1994. First half earnings totaled $7,968,000 or $.64 per share on revenues of $164,401,000 and orders of $162,253,000. These revenue and order levels represent increases of approximately 7% and 6%, respectively, over the same period last year. Our growth continues to be propelled primarily by the home care portion of our business for which first half revenues and orders were up 13% and 21%, respectively. The U.S. hospital market remains sluggish, although interest in our CliniVision(R) respiratory care management information system continues to expand with more than 100 systems now installed. Our new ACCTV(TM) product line is helping our aviation business grow nicely in spite of difficult market conditions. We expect these basic trends to continue for the foreseeable future. /s/ Burton A. Dole, Jr. ----------------------- Burton A. Dole Jr. Chairman, President and August 16, 1994 Chief Executive Officer CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Dollars in thousands, except per share data
THREE MONTHS ENDED SIX MONTHS ENDED JULY 31 JULY 31 -------------------------- -------------------------- 1994 1993 1994 1993 -------------------------- -------------------------- Net Sales $ 83,993 $ 77,914 $ 164,401 $ 153,305 Cost of Goods Sold 48,346 44,519 94,963 86,692 ----------- ----------- ----------- ----------- Gross Profit 35,647 33,395 69,438 66,613 Selling and Administrative Expense 24,364 24,315 48,282 47,753 Research and Development Expense 4,964 6,704 9,779 13,253 ----------- ----------- ----------- ----------- Operating Profit 6,319 2,376 11,377 5,607 Interest Expense 1,384 1,264 2,600 2,401 Restructuring Charges - 9,014 - 9,014 Other Expense (Income), net (369) 753 (1,181) 469 ----------- ----------- ----------- ----------- Income (Loss) Before Income Taxes 5,304 (8,655) 9,958 (6,277) Provision for (Benefit from) Income Taxes 1,060 (3,692) 1,990 (3,163) ----------- ----------- ----------- ----------- Net Income (Loss) Before Cumulative Effect 4,244 (4,963) 7,968 (3,114) Cumulative Effect of a Change in Accounting for Income Taxes - - - 2,755 ----------- ----------- ----------- ----------- Net Income (Loss) $ 4,244 $ (4,963) $ 7,968 $ (5,869) =========== =========== =========== =========== Weighted Average Number of Shares Outstanding 12,502,261 11,902,661 12,455,951 11,917,631 Net Income (Loss) Before Cumulative Effect Per Share $ .34 $ (.41) $ .64 $ (.26) Cumulative Effect of a Change in Accounting for Income Taxes Per Share - - - (.23) ----------- ----------- ----------- ----------- Net Income (Loss) Per Share $ .34 $ (.41) $ .64 $ (.49) =========== =========== =========== =========== Dividends Declared Per Share $ .03 $ .03 $ .06 $ .06 =========== =========== =========== ===========
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) Dollars in thousands
JULY 31 January 31 ASSETS 1994 1994 -------- ---------- Current Assets: Cash and cash equivalents $ 872 $ 713 Trade notes and accounts receivable, net 72,405 70,137 Inventories: Finished goods 15,866 16,163 Work in process 4,533 4,437 Raw materials and supplies 34,733 30,894 -------- -------- 55,132 51,494 Less excess of FIFO cost over LIFO cost 4,338 4,024 -------- -------- 50,794 47,470 Prepaid expenses and other 3,058 5,567 Deferred income tax benefits 10,760 10,760 -------- -------- Total current assets 137,889 134,647 Plant and Equipment 167,996 158,961 Less accumulated depreciation and amortization 72,360 70,068 -------- -------- 95,636 88,893 Other Assets, net 32,124 33,054 -------- -------- Total Assets $265,649 $256,594 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Notes payable $ 10,844 $ 27,791 Trade accounts payable 13,630 13,937 Employee compensation, payroll taxes and withholdings 7,528 8,015 Accrued self-insurance expenses 1,252 1,299 Other accrued expenses 13,042 21,140 Dividends payable 375 359 Income taxes payable 5,385 3,678 Current maturities of long-term debt 6,660 6,546 -------- -------- Total current liabilities 58,716 82,765 Long-Term Debt, less current maturities 63,336 38,656 Deferred Compensation and Pensions 17,315 17,444 Deferred Income Taxes 55 55 Deferred Revenue 10,275 9,962 Stockholders' Equity: Common stock, par value $1.00 per share - Authorized 30,000,000 shares; issued and outstanding, 12,497,253 shares in July and 12,427,653 shares in January 12,497 12,428 Additional paid-in capital 36,477 34,794 Retained earnings 68,477 61,736 Deferred stock awards (1,499) (602) Treasury stock - (644) -------- -------- Total Stockholders' Equity 115,952 107,712 -------- -------- Total Liabilities and Stockholders' Equity $265,649 $256,594 ======== ========
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Dollars in thousands
SIX MONTHS ENDED JULY 31 ------------------- CASH FLOWS FROM OPERATING ACTIVITIES 1994 1993 ------------------- Net income (loss) $ 7,968 $ (5,869) Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities: Depreciation and amortization 7,344 7,579 Deferred income tax benefit - (3,671) Cumulative effect of a change in accounting principles - 2,755 Restructuring charges (5,923) 9,014 Deferred compensation and pensions (129) 996 Provision for losses on accounts receivable 93 568 Asset dispositions, net (477) 63 Shares issued to employee benefit plans 1,312 1,893 Change in operating assets and liabilities: Trade notes and accounts receivable (2,361) 5,645 Inventories (3,324) (3,021) Prepaid expenses 2,028 627 Other assets 392 468 Trade accounts payable and accrued expenses (1,016) (3,914) Federal and state income taxes payable/receivable 1,707 87 Deferred revenue 313 1,036 -------- -------- Net Cash and Cash Equivalents Provided by Operating Activities 7,927 14,256 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of capital assets 2,671 709 Capital expenditures (10,483) (7,946) Purchases of intangible assets (211) (273) Acquisitions, net of cash acquired (2,000) (6,624) -------- -------- Net Cash and Cash Equivalents Used in Investing Activities (10,023) (14,134) CASH FLOWS FROM FINANCING ACTIVITIES Issuance (repayment) of notes payable (16,947) 2,689 Issuance of long-term debt 20,000 - Payments on long-term debt (68) - Dividends paid to stockholders (746) (715) Stock options exercised 23 205 Stock repurchased (7) (1,765) -------- -------- Net Cash and Cash Equivalents Provided by Financing Activities 2,255 414 -------- -------- Net Increase in Cash and Cash Equivalents 159 536 Cash and Cash Equivalents at the Beginning of the Year 713 403 -------- -------- Cash and Cash Equivalents at the End of the Period $ 872 $ 939 ======== ========
INCOMING ORDERS, NET SALES ($ MILLIONS) AND NET INCOME (LOSS) PER SHARE
FY 1994 FY 1995 ------------------------------------- ----------------- Apr. 30 July 31 Oct. 31 Jan. 31 Apr. 30 July 31 ------- ------- ------- ------- ------- ------- MEDICAL -- Orders $65.4 $75.6 $69.9 $ 85.0 $71.9 $76.2 Net Sales 69.4 71.9 69.6 75.0 73.7 77.2 AERO -- Orders 5.6 7.0 5.1 10.4 8.2 6.0 Net Sales 6.0 6.0 5.7 5.7 6.7 6.8 TOTAL -- Orders $71.0 $82.6 $75.0 $ 95.4 $80.1 $82.2 Net Sales 75.4 77.9 75.3 80.7 80.4 84.0 BACKLOG INCREASE (DECREASE) $(4.4) $ 4.7 $(0.3) $ 14.7 $(0.3) $(1.8) - - ------------------------------------------------------------------------------------------------ NET INCOME (LOSS) BEFORE CUMULATIVE EFFECT PER SHARE $ .15 $(.41) $ .06 $(2.46) $ .30 $ .34 CUMULATIVE EFFECT OF ACCOUNTING CHANGES PER SHARE (.23) - - (.01) - - ----- ----- ----- ------ ----- ----- NET INCOME (LOSS) PER SHARE $(.08) $(.41) $ .06 $(2.47) $ .30 $ .34 ===== ===== ===== ====== ===== =====
EX-27 10 FINANCIAL DATA SCHEDULES
5 1,000 US DOLLARS 6-MOS JAN-31-1995 FEB-01-1994 JUL-31-1994 1 757 115 74464 2059 50794 137889 167996 72360 265649 58716 63336 12497 0 0 103455 265649 164401 164401 94963 153024 (1181) 0 2600 9958 1990 7968 0 0 0 7968 0.64 0.64
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