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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED JULY 2, 1995
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 0-14980
NELLCOR PURITAN BENNETT INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 94-2789249
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4280 HACIENDA DRIVE 94588
PLEASANTON, CALIFORNIA (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (510) 463-4000
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
(Title of class)
Preferred Share Purchase Rights
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/
Approximate aggregate market value of the registrant's Common Stock
held by non-affiliates (based on the closing sales price of such stock as
reported in the Nasdaq National Market) on September 1, 1995 was
$1,445,463,015.00.*
Number of shares of Common Stock, $.001 par value, outstanding as of
September 1, 1995 was 28,358,496.
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DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT FORM 10-K PART
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(1) Annual Report to Stockholders for Fiscal Year Ended July 2, 1995 I, II, IV
(2) Proxy Statement for Annual Meeting of Stockholders scheduled to III
be held on October 19, 1995
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* Excludes 291,253 shares of Common Stock held by all directors and executive
officers at September 1, 1995. Exclusion of such shares should not be construed
to indicate that any such person possesses the power, direct or indirect, to
direct or cause the direction of the management or policies of the registrant or
that such person is controlled by or under common control with the registrant.
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PART I
ITEM 1. BUSINESS.
GENERAL
Nellcor Puritan Bennett Incorporated (together with its wholly-owned
subsidiaries, the "Company") is a corporation organized under the laws of the
State of Delaware in 1986 and, until the acquisition of Puritan-Bennett
Corporation in August 1995, operated under the name Nellcor Incorporated. The
Company designs, manufactures and markets monitoring, diagnostic and therapeutic
instruments, sensors, airway adapters and detectors for the safety and
management of respiratory-impaired patients wherever they are treated. The
Company's arterial blood oxygen, respiratory gas, blood pressure and apnea
instruments provide intermittent and continuous, real-time, noninvasive
monitoring of physiologically unstable patients. The Company's wide variety of
oximetry sensors are used with its own instruments, instruments that incorporate
the Company's oximetry OEM module and instruments produced by manufacturers
licensed to use the Company's sensors.
With the acquisition of Puritan-Bennett Corporation, the Company
believes that it has combined the leaders in patient safety monitoring and
respiratory products to create the preeminent company serving the needs of the
respiratory-impaired patient worldwide. The acquisition of Puritan-Bennett
Corporation enables the Company to offer its customers a comprehensive line of
products for the monitoring, diagnosis and treatment of the respiratory-impaired
patient across the spectrum of acute, alternate and home care. The Company's
expanded product line includes pulse oximetry monitors and sensors, critical
care and portable ventilators, home oxygen therapy products such as liquid
oxygen systems and oxygen concentrators, sleep apnea diagnostic and therapy
products and medical gas products and distribution systems.
The Company's products are sold worldwide, principally through a direct
sales force, assisted by clinical education consultants and specialists,
corporate accounts and independent distributors.
FISCAL YEAR 1995 AND RECENT DEVELOPMENTS
Acquisitions
On August 25, 1995, the Company completed its acquisition of
Puritan-Bennett Corporation pursuant to the terms of an Agreement and Plan of
Merger entered into by the two companies on May 21, 1995. On May 4, 1995,
EdenTec Corporation, the Company's home health care subsidiary, acquired Pierre
Medical, a privately-held French manufacturer of noninvasive ventilators, sleep
apnea therapy systems, oxygen concentrators and related respiratory products.
In August 1995, EdenTec Corporation acquired Melville Software Ltd., a privately
held Canadian manufacturer of sleep diagnostic products used in sleep labs. See
"Acquisitions" below.
Products
Early in the second quarter of fiscal year 1995, the Company received
marketing clearance from the United States Food and Drug Administration (FDA)
for PEDI-CAP(TM) , a version of the Company's EASY CAP(R) CO(2) detector,
developed specifically for infants and children. These disposable, non-invasive
CO(2) detection devices are used to verify and monitor correct endotracheal tube
placement in emergency
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situations. Worldwide commercial shipments of the PEDI-CAP product began in the
second quarter of fiscal year 1995.
During the second quarter of fiscal year 1995, the Company also began
limited shipments of its N-400 fetal pulse oximeter in Europe. The N-400 is
used to measure fetal oxygen levels during labor and delivery and is expected to
aid obstetricians in evaluating fetal well-being. In the fourth quarter of
fiscal year 1995, the Company filed an application for an Investigational Device
Exemption (IDE) for the N-400 with the FDA. Clinical trials, which will
evaluate the N-400 fetal pulse oximeter as a tool to reduce Cesarean sections,
are expected to begin by the end of the second quarter of fiscal year 1996.
In March 1995, the Company was awarded ISO 9001 certification for its
facilities, signifying that the Company has met a set of international standards
for product design, manufacturing, installation and service. ISO, the
International Organization for Standardization, a worldwide federation of the
national standards bodies for over 90 countries, represents an effort to promote
international commerce through standardization. ISO 9001 certification is the
first step necessary in order for the Company to affix the CE (Conformitee
European) mark to its products.
During the fourth quarter of fiscal year 1995, the Company received
United States marketing clearance from the FDA for the first two modules of the
NELLCOR SYMPHONY(TM) monitoring system, the N-3000 pulse oximeter and the N-3100
noninvasive blood pressure monitor. The NELLCOR SYMPHONY monitoring system is
designed for use primarily in noncritical care areas throughout the hospital,
particularly on the general care floor, as well as in alternate care settings.
The N-3000, the Company's next generation pulse oximeter, incorporates
OXISMART(TM) advanced signal processing and alarm management technology. It is
designed to address the problem of nuisance alarms by identifying and rejecting
artifacts caused by patient movement or electronic and optical noise
interference, resulting in enhanced performance in high-motion, low-perfusion
patient environments. The N-3100 blood pressure monitor incorporates advanced
noninvasive blood pressure monitoring and employs clinically proven
oscillometric technology. Commercial shipments of the N-3000 and the N-3100 in
the United States began in June 1995. Sales of the products outside of the
United States began in February 1994 and July 1994, respectively.
Litigation
In July 1996, the U.S. Federal District Court in Delaware issued a
decision in favor of the Company, ruling that four key oximeter and sensor
technology patents are valid and would be infringed by Ohmeda Inc. ("Ohmeda"),
a subsidiary of BOC Health Care Inc. ("BOC"), if Ohmeda sold either its adult
or neonatal OxyTip sensors for use with non-Ohmeda monitors. BOC had filed the
suit in December 1992, seeking a declaratory judgment that the Company's
patents were invalid and would not be infringed. BOC has filed notice of its
intention to appeal the decision of the court. See "Item 3, Legal
Proceedings."
ACQUISITIONS
Puritan-Bennett Corporation
The Company has set the strategic objectives of focusing on the
diagnosis, monitoring and treatment of the respiratory-impaired patient across
the worldwide continuum of care and of growing through product line extensions,
other internal developments and through acquisitions and strategic combinations
in order to broaden its product line and enhance its competitive position. The
Company entered into an Agreement and Plan of Merger with Puritan-Bennett
Corporation on May 21, 1995. The transaction was approved at special
meetings of the stockholders of
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both companies held on August 24, 1995. On August 25, 1995, the Company
acquired Puritan-Bennett by means of a wholly-owned subsidiary of the Company
merging with and into Puritan-Bennett, with Puritan-Bennett being the surviving
corporation and becoming a wholly-owned subsidiary of the Company.
The merger with Puritan-Bennett is intended to qualify as a tax-free
reorganization and will be accounted for as a pooling of interests. Under
the terms of the Agreement and Plan of Merger, each outstanding share of
Puritan-Bennett common stock was converted into the right to receive .88 share
of the Company's common stock, resulting in the Company issuing approximately
11.5 million shares, valued at approximately $600 million, based on $52 1/8 per
share, the closing price of the Company's common stock on August 25,
1995. As of September 1, 1995, approximately 28.4 million shares of the
Company's common stock were outstanding.
The Company believes that its acquisition of Puritan-Bennett
represents the combination of market leaders in patient safety monitoring and
respiratory products to create the preeminent company serving the needs of the
respiratory-impaired patient worldwide. For a summary description of
Puritan-Bennett products, see "Puritan-Bennett Products" below. With the
acquisition, the Company believes that it is the leading provider of pulse
oximetry monitoring and sensors, critical care ventilators, oxygen systems and
home sleep diagnostic and therapeutic products across the spectrum of acute,
alternate and home care. With revenues of over $600 million, facilities around
the world and an employee force of over 4,000, the Company believes that it is
the leader in the respiratory product market and will enjoy growth
opportunities in both established and new markets as a result of a combination
of product breadth and increased marketing flexibility. Moreover, an enhanced
product line will provide the Company with broader access to the largest
domestic and international respiratory markets in the hospital, subacute care,
emergency medical services and the home. The Company also believes that the
acquisition of Puritan-Bennett provides the opportunity for cost savings
through consolidation of facilities and operations and for revenue and earnings
growth rates greater than those possible for either company alone. The
achievement of these goals, however, is dependent on the successful integration
of two companies that had previously operated independently. The successful
integration of the operations of the companies will require the dedication of
substantial management resources. There can be no assurance that difficulties
encountered in integrating the operations of the companies will be overcome or
that the goals and benefits expected from a successful integration will be
realized. Moreover, the process of integrating operations could cause an
interruption of, or loss of momentum in, the activities of either or both of
the companies' businesses. Difficulties encountered in connection with the
integration of the two companies could have an adverse effect on the business,
results of operations or financial condition of the Company going forward.
Set forth below is certain summary, unaudited supplemental combined
condensed financial information combining the Company's financial data for each
of the five fiscal years ended July 2, 1995 with Puritan-Bennett's financial
data for each of the three fiscal years ended January 31, 1995 and
Puritan-Bennett's two fiscal years ended December 31, 1991.
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SUPPLEMENTAL COMBINED FINANCIAL DATA
Years ended (unaudited)
(In thousands, except per share JULY 2, 1995 JULY 3, 1994 JULY 4, 1993 JULY 5, 1992 JULY 7, 1991
amounts)
Revenue $ 600,066 $ 544,227 $ 518,246 $ 452,286 $ 410,805
R & D expenses 47,203 48,867 48,545 46,256 33,661
Net income 49,463 (6,422) 39,715 21,867 32,135
Earnings per share 1.77 (0.23) 1.46 0.83 1.26
Working capital 244,395 206,709 224,772 179,374 177,606
Total assets 565,704 489,942 470,014 397,442 335,993
Long-term obligations 85,026 66,117 64,351 49,085 46,293
Stockholders' equity 361,905 316,625 326,187 275,421 238,752
Pierre Medical
On May 3, 1995, EdenTec Corporation, the Company's home health care
subsidiary, acquired Pierre Medical, a privately held French manufacturer of
respiratory products used in the home. Pierre Medical manufactures and markets
noninvasive ventilators, sleep apnea therapy systems, oxygen concentrators and
related respiratory products for sale in Western Europe, primarily in France and
Germany. The acquisition of Pierre Medical has been accounted for as a
purchase.
Melville Software
In August 1995, EdenTec Corporation acquired Melville Software Ltd., a
privately held Canadian company, that manufactures and markets sleep diagnostic
products used in sleep labs, including SANDMAN(TM), a line of sleep disorder
diagnostic systems sold primarily in the United States and Canada. Melville
products are currently approved for sale throughout North America.
PRODUCTS
With the acquisition of Puritan Bennett, the Company's expanded product
line includes pulse oximetry moniters and sensors, critical care and portable
ventilators, home oxygen therapy products, sleep apnea diagnostic and therapy
products and medical gas products and distribution systems. Following is a
summary discription of the Company's products.
Oximetry Instruments
The Company's pulse oximeters provide noninvasive measurement of a
patient's arterial blood oxygen saturation. The Company's principal oximetry
instruments are the N-180, N-185, N-200 and N-3000 pulse oximeters and the N-20
and N-30 portable pulse oximeters. In addition, the Company's OXINET(R) pulse
oximetry network permits remote monitoring of multiple patients from a
centralized location.
The N-180, N-185 and N-200 pulse oximeters provide continuous
monitoring of arterial blood oxygen saturation and heart rate and are designed
for use in all areas of the hospital, including intensive care units,
intermediate care and step-down units and general care floors, and in the
alternate site care market, including surgicenters, subacute care and skilled
nursing facilities and the home. The Company's N-20 and N-30 portable pulse
oximeters provide periodic (and in the case of the N-30, temporary
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continuous) monitoring of arterial blood oxygen saturation and heart rate and
are designed for use in areas of the hospital and the alternate site care market
where continuous monitoring is not necessary or viable, for example, on the
general care floor, in the home and in prehospital, emergency care and
ambulatory settings.
During the fourth quarter of fiscal year 1995, the Company received
marketing clearance from the FDA for the N-3000 pulse oximeter and began
commercial shipments of the product in the United States in June 1995. The
Company began selling the N-3000 pulse oximeter outside of the United States in
February 1994. The N-3000, the Company's next generation pulse oximeter,
provides continuous monitoring of arterial blood oxygen saturation and heart
rate and is the first module of the NELLCOR SYMPHONY multiparameter monitoring
system designed for use primarily in noncritical care areas throughout the
hospital, particularly on the general care floor, as well as in alternate care
settings. The N-3000 incorporates OXISMART advanced signal processing and alarm
management technology. It is designed to address the problem of nuisance alarms
by identifying and rejecting artifacts caused by patient movement or electronic
and optical noise interference, resulting in enhanced performance in
high-motion, low-perfusion patient environments.
The Company's OXINET pulse oximetry network is designed for use in
hospital and alternate care settings and allows for the continuous monitoring of
up to eight patients from one centralized location using multiple N-3000 or
N-200 pulse oximeters and a central computer display.
The Company is planning to expand into the labor and delivery market
with the N-400 fetal pulse oximeter, a product for monitoring the blood oxygen
saturation of a fetus during labor and delivery. The Company believes that the
information provided by the N-400 will aid obstetricians significantly in
evaluating fetal well-being. During the second quarter of fiscal year 1995, the
Company began limited shipments of the N-400 fetal pulse oximeter in Europe.
In the first quarter of fiscal year 1994, the FDA notified the Company
that the N-400 fetal pulse oximeter must be submitted for approval for marketing
clearance in the United States under Premarket Approval Application (PMA)
regulations and not under the 510(k) premarket notification clearance process. A
PMA application, compared to the 510(k) procedures, requires more laboratory and
clinical testing data and more detailed design and manufacturing information,
and therefore, requires more time for the gathering of data and preparation of
the PMA application. Historically, the time elapsed between the submission of a
PMA application and receipt of premarket approval is significantly longer than
that for clearance to market under the 510(k) procedures. Since being informed
of the need to file a PMA for the N-400, the Company has focused on finalizing
an IDE protocol to be used in the conduct of United States clinical trials of
the N-400. In the fourth quarter of fiscal year 1995, the Company filed an
application for an IDE for the N-400 with the FDA. Clinical trials, which will
evaluate the N-400 fetal pulse oximeter as a tool to reduce Cesarean sections,
are expected to begin by the end of the second quarter of fiscal 1996. Given
the uncertainties and delays associated with the FDA and the PMA process, there
can be no assurance that the Company will receive approval from the FDA to
market the N-400 in the United States or, when such approval, if it is granted,
can be expected. For a summary discussion of the FDA regulatory
framework, see "Regulatory Matters" below.
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OEM Oximetry Modules
The Company's OEM oximetry modules are sold to manufacturers of
multi-parameter monitoring systems which incorporate the Company's oximetry
technology into their own systems. See "Competition" below. The Company
currently has agreements with 36 OEM customers. These customers include medical
equipment manufacturers in the United States, Europe, Japan and Latin America.
During fiscal year 1995, nine new OEM agreements were entered into with, among
others, Bese Bioengenharia Sist. Equip. S/A. of Brazil, Fukuda M-E Kogyo Company
of Japan and Dima Italia SAS of Italy.
Multi-function Monitors/Systems
The Company's ULTRA CAP(R) N-6000 combination pulse oximeter/capnograph
combines pulse oximetry with advanced carbon dioxide monitoring technology.
While providing continuous monitoring of arterial blood oxygen saturation, the
N-6000 also measures the concentration of carbon dioxide in a patient's breath.
In some clinical situations, abnormal patterns and levels of carbon dioxide may
indicate a ventilation problem before blood oxygen levels become depressed. The
ULTRA CAP monitor is designed for use primarily in critical care settings,
particularly intensive care units, hospital emergency rooms and post-anesthesia
care units, and can be used in other hospital settings such as the operating
room and during intra-hospital transport. Pryon Corporation (Menomonee Falls,
Wisconsin) designed and manufactures the ULTRA CAP for Nellcor on a private
label basis.
As discussed above, during the fourth quarter of fiscal year 1995, the
Company received marketing clearance from the FDA for the first two modules of
the NELLCOR SYMPHONY monitoring system, the N-3000 pulse oximeter and the N-3100
noninvasive blood pressure monitor.
Oximetry Sensors
The Company produces and sells a full line of proprietary adhesive
(patient dedicated) and reusable oxygen transducers (reusable sensors) for use
with the Company's own instruments, monitors and monitoring systems
incorporating the Company's OEM oximetry module, and monitors and monitoring
systems licensed to use its sensors. The Company's sensors include the adhesive
(patient dedicated) OXISENSOR(R) II line of sensors, the combination
adhesive/reusable OXICLIQ(R) sensor line and reusable sensors such as the
DURASENSOR(R), DURA-Y(R), and OXIBAND(R) oxygen transducers. During fiscal year
1995, the Company broadened its line of sensors with the addition of the
neonatal model of its OXICLIQ oxygen transducer. Moreover, in fiscal year 1995,
the Company received marketing clearance from the FDA for the DURA-Y ear clip
which allows the DURA-Y sensor to be attached to a patient's ear. During fiscal
year 1995, the Company also expanded its sensor recycling program which now
includes more than 480 hospitals in the United States. Hospitals participating
in the recycling program are able to reduce sensor costs and medical waste by
purchasing adhesive sensors that have been returned to the Company for
recycling. The recycling process consists of re-manufacturing, testing and
sterilization of the sensors.
In fiscal year 1995, sales of the Company's oximetry products, which
include oximetry instruments, sensors and OEM modules, accounted for more than
three-quarters of the Company's net revenue. This is comparable to the portion
of the Company's net revenues accounted for by sales of oximetry products in
each of fiscal years 1994 and 1993.
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End-Tidal CO2 Detector/Indicator
The Company's EASY CAP end-tidal CO2 detector is a disposable,
noninvasive carbon dioxide detection device used in emergency departments, on
resuscitation carts and during patient transport. The single-use EASY CAP device
contains a specially-impregnated paper which reacts to the presence of carbon
dioxide by changing color and provides a quick and easy way to verify and
monitor correct endotracheal tube placement during emergency situations. In the
second quarter of fiscal year 1995, the Company received marketing clearance
from the FDA for PEDI-CAP, a version of the EASY CAP device, developed
specifically for use with infants and children. Worldwide commercial shipments
of the PEDI-CAP product began in the second quarter of fiscal year 1995.
The Company's STAT CAP(R) airway CO2 indicator is a small (hand-held),
light-weight, electronic instrument that provides a semi-quantitative estimate
(a numerical range) of end-tidal CO2. Its durability, portability and long
battery life make the STAT CAP indicator particularly well-suited for use in
emergency care and transport, both in the hospital and ambulance. The STAT CAP
can assist clinicians in verifying proper placement of an endotracheal tube and
can be used in emergency situations to evaluate ventilation or effectiveness of
cardio pulmonary resuscitation.
Sleep Disorder Products
The Company's wholly-owned subsidiary, EdenTec Corporation, designs,
manufactures and markets infant and adult apnea monitors, recorders and
diagnostic systems for use in the hospital and the home. EdenTec's ASSURANCE(R)
2000 Heart and Respiration Monitor provides continuous noninvasive monitoring to
detect central apnea, slow breathing, and slow and fast heart rate. The
addition of the EDENTREND(R) Memory Module to the ASSURANCE 2000 enables the
monitor to record, store and report alarm events for up to 45 days. In the
second quarter of fiscal year 1994, EdenTec introduced for sale outside of the
United States the ASSURANCE(R) 3000 Heart and Respiration Monitor. The
ASSURANCE 3000 Heart and Respiration Monitor has more memory than the ASSURANCE
2000 and is lighter and more compact.
EdenTec's EDENTRACE II(TM) Recording System is designed to assist in
the diagnosis of sleep apnea in sleep labs, hospitals, clinics and the home. The
recording system monitors and records up to six physiologic parameters including
heart rate, respiratory effort, airflow, oxygen saturation with motion
annotation, body position and snoring sounds. The EDENTRACE II PLUS Recording
System, like the EDENTRACE II, is designed to assist in the diagnosis of sleep
apnea. However, the EDENTRACE II PLUS Recording System can be used on infants
as well as adults. EdenTec also markets the EDENTRACE(R) Analysis Software for
use with the EDENTRACE II and the EDENTRACE II PLUS Recording Systems to aid
clinicians in the archiving, retrieval and analysis of patient data.
On May 3, 1995, EdenTec Corporation acquired Pierre Medical. Pierre
Medical manufactures and markets noninvasive ventilators, sleep apnea therapy
systems, oxygen concentrators and related respiratory products for sale in
Western Europe, primarily in France and Germany. Its products include the
O'MEGA(TM) oxygen concentrator for patients requiring supplemental oxygen, the
O'NYX(TM) noninvasive ventilator that provides bilevel pressure (ventilation)
for patients who have difficulty breathing, and the MORPHEE PLUS(TM)
computerized, nasal CPAP device that administers air pressure to a patient's
airway, via nasal mask, for treatment of obstructive sleep apnea. The Company
may seek United States marketing clearance for select Pierre Medical
products.
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HEALTHQUIZ(TM) System
The HEALTHQUIZ system is a patient-driven, automated, medical history
system which combines a simple, user-friendly, hand- held device with
proprietary application software that can be tailored to a variety of uses and
health care settings. HEALTHQUIZ(TM) PRESCREEN(TM), the first application
software commercialized for use with the HEALTHQUIZ device, is designed to aid
clinicians in conducting pre-anesthetic assessments of patients. The HEALTHQUIZ
PRESCREEN software application allows a patient to answer a series of yes/no
questions and uses branching logic to collect a standardized, pre-anesthetic
patient history and provides clinicians with summary reports that calculate a
patient-specific anesthesia risk score and suggest appropriate lab tests. A
second software application for use with the HEALTHQUIZ device, HEALTHQUIZ(TM)
PREVENT(TM), when completed, will be designed to allow patients to complete
their own health histories and provide clinicians with summary reports and
preventive care recommendations. The HEALTHQUIZ system is not subject to the
510(k) premarket notification process or the PMA process. Sales of the
HEALTHQUIZ system have been limited since it was introduced in the fourth
quarter of fiscal year 1994. The Company regularly reviews its net investment
in the HEALTHQUIZ system assets and the related market opportunities.
Blood Pressure Monitors
The NELLCOR(R) N-CAT(R) noninvasive blood pressure monitor displays
continuous blood pressure information, including a waveform. This contrasts with
conventional noninvasive blood pressure monitors, which provide only
intermittent measurements. Because the N-CAT monitor performs best in the
absence of motion, Nellcor has marketed the instrument only for use in areas of
low patient motion such as hospital operating rooms. In the second half of
fiscal 1991, Nellcor began commercial shipments of the N-CAT continuous
noninvasive blood pressure monitor developed and manufactured by Colin
Electronics of Japan (Colin). Shipments of the N-CAT monitor to date have been
limited, and, since the fourth quarter of fiscal 1992, shipments have been
suspended pending evaluation of new versions of the product software developed
by Colin intended to improve the product's operating performance. Costs
associated with this evaluation were not material in fiscal year 1995 and were
expensed as incurred. After evaluating the most recent enhancements to the
product's software, the Company is now satisfied with the performance of the
N-CAT monitor. Because of modifications made to the product's software, Colin
may be required to resubmit a 510(k) to the FDA for clearance to market the
product in the United States.
As discussed above, during the fourth quarter of fiscal year 1995,
the Company received marketing clearance from the FDA for the N-3100
noninvasive blood pressure monitor and began commercial shipments of the
product in the United States in June 1995. The Company began selling the N-3100
noninvasive blood pressure monitor outside of the United States in July 1994.
The N-3100 blood pressure monitor incorporates advanced noninvasive blood
pressure monitoring and employs clinically proven oscillometric technology.
PURITAN-BENNETT PRODUCTS
Ventilators and Related Products
7200(R) SERIES ventilator system
The 7200 SERIES ventilator system is a critical care ventilator
purchased primarily by hospitals to assist or manage patient respiration in a
variety of acute care settings. The 7200 SERIES ventilator is designed to ease
the work of patient breathing and lessen patient discomfort. It automatically
performs pulmonary function diagnostic tests and reduces therapists' time
attending to patients and preparing the ventilator for patient use. The 7200
SERIES ventilator is finding increasing use in sub- acute care settings, where
chronically ventilator-dependent patients, who are otherwise stable, require
sophisticated ventilation modes to improve the prospects of weaning. The 7200
SERIES ventilator is sold in three basic
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configurations to cover the wide range of cost/performance applications and
provides upgrade paths to incorporate new options as they become available.
7250(R) METABOLIC MONITOR
Metabolic monitoring is the measurement of oxygen consumption and
carbon dioxide production to determine patient nutritional requirements and
metabolic status. The 7250 METABOLIC MONITOR measures a patient's inspired
oxygen and carbon dioxide and compares these measurements with the patient's
expired oxygen and carbon dioxide. From such measurements and the volume of
inspired and expired gas, the 7250 METABOLIC MONITOR calculates oxygen
consumption and carbon dioxide production. From these calculated parameters, the
monitor can determine values used for deciding daily caloric intake needs.
Metabolic monitoring, in general, is a tool for detecting and monitoring
conditions that can affect clinical outcomes such as nutritional support, drug
titration and respiratory muscle workload, and that can affect weaning from
mechanical ventilation. The 7250 METABOLIC MONITOR can be integrated with the
7200 SERIES ventilator, is relatively simple to use and provides more accurate,
continuous measurements of a patient's energy expenditure.
CLINIVISION(R)
CLINIVISION is a personal, computer-based, patient care and
respiratory therapy department management information system that integrates the
patient data captured and processed by the 7200 SERIES ventilator, as well as
other clinical data, into a management information system that can be used by
respiratory therapy department directors and therapists to manage and monitor
patient care and staffing requirements. Once interfaced to the host hospital's
information system, CLINIVISION electronically handles admitting, discharge,
transfer, and order entry data, as well as transmitting billing and results
reporting. Last fiscal year, Puritan-Bennett introduced new enhancements to
CLINIVISION's system communications and report generation features.
RADIOLINK(TM) 3.0 allows users to transfer new work orders or work order
changes to therapists while working in remote parts of the hospital. The
RADIOLINK product uses spread spectrum radio frequency transmission, adding
cable-free data communication capabilities to the CLINIVISION system. With
RADIOLINK 3.0, the Company has also added electronic mail, allowing supervisors
to relay messages from any workstation to therapists on the floor. Last fiscal
year, Puritan-Bennett also released PHONELINK(TM) 2.0. With this feature,
therapists can download information from any phone, rather than having to
return to the hospital or office to transfer information. In December 1994,
Puritan-Bennett introduced CLINIVISION "Lite", an entry level, lower cost
single workstation system that enables smaller hospitals to take advantage of
productivity tools they need but without as substantial a capital outlay.
COMPANION(R) 2801 PORTABLE VENTILATOR
In addition to the 7200 SERIES critical care ventilator,
Puritan-Bennett also manufacutes the COMPANION 2801 PORTABLE VENTILATOR for sale
outside of the United States. The COMPANION 2801 PORTABLE VENTILATOR is used by
patients requiring breathing assistance as a result of neuromuscular disease,
chronic obstructive pulmonary disease or spinal cord injury. The COMPANION 2801
PORTABLE VENTILATOR is compact in size, operates from either AC power or 12VDC
battery power and incorporates an internal battery for short-term emergency
power outages. The COMPANION 2801 PORTABLE VENTILATOR can be used at the
patient's bedside, mounted on wheelchairs or in automobiles and airplanes.
Portable ventilators offer a reduced cost alternative to hospital care for
patients who can be discharged to their home or a skilled nursing facility or
other alternate care site. Puritan-Bennett manufactures the COMPANION
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2801 PORTABLE VENTILATOR in the Republic of Ireland where it is marketed to
customers outside the United States.
Home Oxygen Therapy Products
COMPANION(R) 492a/590/550
The Company's principal home oxygen therapy products are oxygen
concentrators and liquid oxygen systems. The COMPANION 492a and 590 oxygen
concentrators (four and five liter per minute capacity units) extract oxygen
from room air and provide a supply of oxygen to home-bound patients who require
a continuous supply of oxygen and whose prescribed flow rates do not exceed
five liters per minute. The COMPANION 492a and 590 oxygen concentrators
incorporate an optional OCI(R) indicator (Oxygen Concentration Indicator) that
continuously monitors the oxygen percentage of the output of the device and
alerts the patient in the event of performance degradation, automatically
shutting the device down in the event of significant deterioration. In the
event of such a shut down, the patient reverts to an alternate supply of
oxygen. By utilizing an oxygen concentrator at home, a patient reduces the
frequency with which a finite oxygen supply needs to be renewed. The OCI
indicator option on the COMPANION 492a and 590 allows a home care provider to
verify over the phone that the concentrator is generating high oxygen
concentrations, detect problems early before they become expensive ones and
reduce trips for routine filter replacement.
For patients requiring a continuous supply of oxygen, Puritan-Bennett
also manufactures several liquid oxygen systems. Liquid oxygen systems store
oxygen at a very low temperature in liquid form. Puritan-Bennett's stationary
unit can be refilled at home and can be used to fill a portable device, thereby
permitting enhanced patient mobility. The COMPANION(R) 550 ambulatory unit for
mobile patients utilizes a proprietary, pneumatic oxygen conserving device that
requires no batteries and is significantly smaller and lighter than its
predecessor, while providing essentially the same duration of use.
The COMPANION or Mark "Low Loss" Oxygen Reservoir is designed to
refill portable liquid oxygen units for extended periods of time with reduced
evaporation loss.
Sleep Disorder Products
Puritan-Bennett manufactures the COMPANION(R) 318 Nasal CPAP System, a
therapeutic device for patients with adult sleep apnea, the temporary cessation
of breathing while asleep. The COMPANION 318 Nasal CPAP System is smaller than
competitive products and offers additional diagnostic tools for sleep lab
clinicians. Last fiscal year, Puritan-Bennett introduced the COMPANION(R) 320
I/E Bi-level(R) Respiratory System for patients requiring higher respiratory
pressures to overcome airway obstruction.
In late January 1994, Puritan-Bennett acquired SEFAM S.A., a French
manufacturer of sleep diagnostic and therapeutic products. SEFAM products
include the REM+ CONTROL CPAP device for treating sleep disorders and the
RESPISOMNOGRAPHE and the MINISOMNO(TM) diagnostic systems used by hospital sleep
labs and home care providers.
Medical Gas Products and Distribution Systems
The production and distribution of medical gases represents
Puritan-Bennett's oldest product line. Puritan-Bennett is the largest producer
of nitrous oxide in North America. This gas is used in anesthesia and analgesia
and is sold by Puritan-Bennett under its own label and through distributors. The
Company also distributes other medical gases, including oxygen, Sodalime (used
to absorb CO2 during anesthesia) and special gas mixtures that are used for
calibration, testing, and other purposes. Puritan-Bennett also manufactures
the hospital distribution systems for medical gases.
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Spirometry
The PB100 Spirometer is a small, hand held spirometer that offers true
portability. The patient data memory card and the rechargeable batteries allow
testing of multiple patients at off-site locations. The RENAISSANCE(R)
Spirometry System consists of the PB100 Spirometer and a base station used for
downloading patient information to a choice of printers along with the option of
sending patient data to a computer. Two disposable pneumotachs eliminate
cleaning and minimize the risk of cross-infection for both patients and staff.
PRODUCT DEVELOPMENT
The Company is continuing to develop new products to address existing
and new markets. The introduction of new products may be prevented or delayed
by engineering obstacles, regulatory procedures, clinical trials, production
difficulties and other factors. In addition, the costs of producing, promoting
and servicing new products are generally greater than in the case of mature,
higher volume products. New product introductions can also temporarily reduce
revenues by interfering with sales of existing products.
As the Company's existing products reach life cycle maturity, the
Company's ability to develop or acquire new products and technologies increases
in importance. The Company has and will continue to pursue technology, new
product and business acquisition opportunities intended to broaden the Company's
product offerings. Examples of such activities include the acquisitions of
Pierre Medical and Puritan-Bennett Corporation. Such activities may result in
increased expenses which could have an adverse impact on the Company's net
income.
MARKETS
Customers
The Company's traditional customers have been the critical care units
of hospitals, for example, operating rooms, post-anesthesia recovery rooms and
intensive care units. However, with the increasing pressure to lower health
care costs, more patients are being treated in lower-cost areas in and outside
the hospital. The Company's products are now purchased for use throughout the
hospital, including intermediate care and step-down units, labor and delivery
rooms, emergency rooms and general care floors, and marketed and sold into the
alternate site care market, including surgicenters, subacute care and skilled
nursing facilities, ambulatory emergency care settings and the home. With the
acquistion of Puritan-Bennett the Company expects the home care market to
become a more significant part of its customer base. The Company's sales are
broadly based, and no individual customer accounts for more than 10% of the
Company's total net revenues.
Market Trends
As health care increasingly becomes managed care, patient care is
shifting to lower-cost areas of the hospital and alternate care sites outside of
the hospital, including subacute care centers, skilled nursing facilities and
the home. Additionally, in an effort to create larger, more cost-effective
entities capable of competing for managed care contracts, health care providers
are consolidating and vertically integrating, and hospitals are joining local or
regional multiple hospital systems in greater numbers. As a result of these
ongoing changes in the delivery of health care, the Company expects that a
greater proportion of its future revenue will come from sales of its products to
a smaller customer base, primarily comprised of larger, consolidated health care
providers and buying groups, and from sales of its products into the growing
alternate site care market, especially the home. Moreover, in the current
health care business environment, hospitals, which are the Company's principal
customers, face increasing pressure to control costs. This pressure may, in the
future, lead to a decrease in the average selling prices for a number of the
Company's products, which could adversely affect the Company's gross margin.
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Health Care Reform
The health care industry in the United States continues to experience a
period of extensive change. Changes in the law or new interpretations of
existing laws may have a dramatic effect on the definition of permissible or
impermissible activities, the relative costs associated with doing business and
the amount of reimbursement by both government and third-party payors. In
addition, economic forces, regulatory influences and political initiatives are
subjecting the health care industry to fundamental change. Health care reform
proposals have been formulated by the current administration and by members of
Congress. In addition, state legislatures periodically consider various health
care reform proposals. Federal, state and local government representatives
will, in all likelihood, continue to review and assess alternative health care
delivery systems and payment methodologies, and ongoing public debate of these
issues can be expected. The ultimate timing or effect of legislative efforts
cannot be predicted, and short-term cost containment initiatives may vary
substantially from long-term reforms and may impact the business of the Company
in different ways. Although the Company believes that it is well positioned to
respond to changes resulting from health care reform, no assurance can be given
that any such efforts or reforms will not have an adverse effect on the future
business, results of operations or financial condition of the Company.
MARKETING AND SALES
North America. In North America, the Company sells its products
principally through its direct sales force, supplemented by several full-line
sales distributors, rental and "just-in-time" distributors and several sensor
distributors. With the acquisition of Puritan-Bennett, the Company is
expecting to consolidate its sales force under area directors and regional
business managers who will oversee sales forces for the hospital and home care
markets, and sensor and ventilator specialists. The Company will also employ
clinical education consultants (CECs), who are typically registered nurses,
respiratory therapists or nurse anesthetists, and who provide customers with
continuing education and in-service training on the use of the Company's
products. The CECs also maintain contact with clinicians and medical
organizations to educate medical professionals on new clinical applications for
monitoring or assessment for which the Company's products can be used. The
Company 's CEC organization is accredited by the American Nurses Association as
a provider of continuing nursing education.
Latin America. In early fiscal year 1993, the Company increased its
marketing and sales efforts in this market. Sales into Latin America are
through distributors. The Company has distributors in all major Latin American
countries, including Mexico and Brazil.
Europe. The Company has devoted significant resources to the
development of its European markets and administrative infrastructure. The
Company continues to expand sales, service and distribution efforts in this
market. Through its acquisition of Puritan-Bennett and Pierre Medical, the
Company has broadened its product offerings in the European home care market.
The Company has sales and marketing offices and direct sales forces throughout
Western Europe, including in the Netherlands, France, Germany, the United
Kingdom, Belgium and Spain. Sales in Europe are made through the Company's
direct sales forces and distributors.
Asia. The Company has a sales and marketing office in Hong Kong. The
Company has distributors in most major countries in Asia.
Japan. In fiscal year 1995, the Company increased to 50 percent its
ownership interest in Nellcor-CMI, Inc. (NCI), the Company's Tokyo-based joint
venture with Century Medical, Inc. With a greater
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level of investment in the venture and increased management involvement and
marketing resources, the Company plans to pursue more aggressively opportunities
for the Company's products in Japan. The Company sells its products in Japan
through NCI's direct sales force and distributors.
Sales outside the United States (including sales by the Company's
subsidiaries) accounted for approximately 23 percent of net revenue in fiscal
year 1995, 18 percent of net revenue in fiscal year 1994 and 17 percent of net
revenue in fiscal year 1993. Financial information concerning the Company's
foreign and domestic operations and export sales is found in Note 9 to the
Financial Statements in the Company's 1995 Annual Report to Stockholders, which
is incorporated herein by reference.
Timing of Orders and Shipments; Backlog. Historically, orders in the
first fiscal quarter have been lower than in the second, third and fourth
quarters. Of the orders received by the Company in any fiscal quarter, a
disproportionately large percentage has typically been received and shipped
toward the end of that quarter. Accordingly, backlog has historically been
modest and not an accurate predictor of future revenues, and results for a given
quarter can be adversely affected if there is a substantial order shortfall late
in that quarter. Total backlog at the end of fiscal year 1995 and fiscal year
1994 was approximately $9.8 million and $10.7 million, respectively. The
decrease in backlog in fiscal year 1995 was primarily due to increased shipments
of the N-3000 pulse oximeter as compared to fiscal year 1994. Approximately
14% of the total backlog as of the end of fiscal year 1995 is shippable in
fiscal years after 1996.
COMPETITION
The medical device industry is characterized by rapidly evolving
technology and increased competition. Competitors of the Company include large
medical companies, some of which have greater financial and technical resources
and broader product lines than the Company. The Company believes that the
principal competitive factors in its product markets are product features,
price, quality, customer service, performance, market reputation, breadth of
product offerings and effectiveness of sales and marketing efforts. The Company
also believes that the speed with which companies can identify customer needs
and develop products to meet those needs are important competitive factors. The
Company believes that it competes favorably with respect to each of these
factors. However, there are a number of companies that currently offer, or are
in the process of developing, products that compete with products offered by the
Company. Some of these competitors may have substantially greater capital
resources, research and development staffs and experience in the medical device
industry, including with respect to regulatory compliance, and in the
development, manufacturing and sale of medical products similar to those
offered by the Company. There can be no assurance that some of these
competitors will not succeed in developing technologies and products that are
more effective than those currently produced by the Company or that would
render some products offered by the Company obsolete or non-competitive.
Moreover, competition based on price is expected to become an increasingly
important factor in customer purchasing patterns as a result of cost
containment pressures on, and consolidation in, the health care industry. Such
competition has exerted, and is likely to continue to exert, downward pressure
on the prices that the Company is able to charge for its products. There can
be no assurance that the Company will be able to offset such downward price
pressure through corresponding cost reductions.
The Company's principal competitor in pulse oximetry in the United
States is Ohmeda, Inc., a subsidiary of BOC Health Care, Inc. ("BOC"). The
Company and BOC have cross-licensed certain patents from one another (see
"Licenses and Patents" and "Item 3. Legal Proceedings." below). The Company
also faces competition from manufacturers of multi-parameter monitoring systems,
including Hewlett-Packard Co., SpaceLabs Medical, Inc., Datascope Corporation
and Protocol Systems, Inc., whose systems frequently include pulse oximetry. In
response, the Company sells OEM oximetry modules and
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has licensed certain systems manufacturers to make their instruments compatible
with the Company's sensors. The Company has entered into OEM and/or licensing
agreements with the major systems manufacturers in the United States, including
Hewlett-Packard Co., SpaceLabs Medical, Inc., Datascope Corporation and Protocol
Systems, Inc.
RESEARCH AND DEVELOPMENT
The principal focus of the Company's research and development effort is
to apply technology to well-defined clinical problems through innovative
engineering. In this process, the Company is also focused on the development of
products specifically designed to meet customer demands for performance,
cost-effectiveness and environmental responsibility. With the acquisition of
Puritan-Bennett, the Company expects to fund an investment in research and
development of more than $50 million in fiscal year 1996.
Introduction of any product now under development will require
completion of development and engineering work, successful conclusion of
clinical trials, compliance with regulatory procedures and the transfer of the
product to production. There can be no assurance that the Company's product
development work will result in viable new products. The Company's research and
development expenditures were approximately $27.2 million (10% of net revenue)
in fiscal year 1995, $24.0 million (10.2% of net revenue) in fiscal year 1994
and $22.7 million (10.4% of net revenue) in fiscal year 1993.
MANUFACTURING AND SUPPLIERS
The Company's products are assembled using both standard components and
components manufactured to the Company's specifications such as printed circuit
board assemblies. The Company's instruments contain microprocessors for which
proprietary software is designed, written and tested by the Company. The
Company maintains test and inspection procedures for components and assembled
instruments.
The Company currently procures most of its components from outside
suppliers, including foreign vendors. Though multiple sources are generally
available for these components, the Company also relies upon single-source
suppliers to provide certain components for its products. To the extent the
Company relies on single-source suppliers, there can be no assurance that supply
shortages or interruptions will not arise, which, if they were to occur, could
increase the cost or delay the shipment of the Company's products or cause the
Company to incur costs to develop alternative sources. Any of these occurrences
could have a material adverse effect on the Company's results of operations.
With the acquisition of Puritan-Bennett, the Company will produce some
components for its own products made from a wide variety of raw materials that
are generally available in quantity from alternate sources of supply.
Because the Company believes that prompt shipment of orders is
important to compete effectively, the Company has maintained substantial
inventories of raw material, work in process and finished goods to be able to
respond rapidly to customer demands. Should the Company's order forecasts
exceed the orders actually achieved, excess inventories may prove unsalable or
salable only at reduced prices. The Company maintains reserves for obsolete or
excess inventory which it believes to be adequate.
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LICENSES AND PATENTS
At July 2, 1995, the Company held 57 United States patents and 75
patents in foreign countries. With the acquisition of Puritan-Bennett, the
Company holds 111 United States patents and 105 patents in foreign countries.
The Company has patent applications pending in the United States and in
selected foreign countries covering features of its current products and
products under development. There can be no assurance that any patents will be
issued on the pending applications or that any of its issued patents will
withstand challenge. Although the patents that the Company has been issued are
of value and those for which the Company has applied would be of additional
value, the Company believes that other factors are of greater competitive
importance (see "Competition" above).
Many patents in the general area of the Company's current products and
products under development have been and may in the future be issued to others.
The Company has entered into license agreements under which it may practice
certain patents for the lives of the patents. The Company may in the future
determine that it is advisable to seek licenses on other such patents. There can
be no assurance that such licenses will be available or, if available, will be
available on terms favorable to the Company.
In 1986, the Company and BOC Health Care, Inc., the parent corporation
of Ohmeda, one of Nellcor's principal competitors, entered into cross licenses
of certain oximetry patents (see "Item 3. Legal Proceedings." below).
The Company has also granted licenses under its sensor coding patents
to Hewlett-Packard Company, Siemens Medical Electronics, Inc., SpaceLabs, Inc.
and Marquette Electronics, Inc. These licenses permit those companies to
manufacture monitors that are compatible with the Company's oximetry sensors but
do not permit the manufacture of sensors incorporating the patented invention.
The Company believes that these licenses, together with the Company's sale of
pulse oximetry modules on an OEM basis, have expanded the base of instruments
using the Company's proprietary sensors and are helping to promote market
acceptance of adhesive sensors as a standard of care.
The Company has granted licenses to Hewlett-Packard Company, Siemens
Medical Electronics, Inc., and Bruel & Kjaer Export under its variable pitch
beeper patent. The licenses permit those companies to make and sell oximeter
monitors whose pulse-to-pulse beep tones vary in pitch as the patient's
saturation changes.
REGULATORY MATTERS
FDA Regulation
The Company manufactures and sells medical devices. The FDA regulates
the development, testing, manufacturing, packaging, distribution and marketing
of medical devices in the United States, including the products manufactured by
the Company. The development, testing, manufacturing, packaging, distribution
and marketing of medical devices in the United States are regulated under the
Medical Device Amendments of 1976 to the Federal Food, Drug, and Cosmetic Act
(the "1976 Amendments"), the Safe Medical Devices Act of 1990, the Medical
Device Amendments of 1992 and additional regulations promulgated by the FDA. The
State of California (through its Department of Health Services ("DHS")), where
the Company has several manufacturing plants, as well as other states, also
regulate the manufacture of medical devices. The Company believes that it is
substantially in compliance with applicable FDA and DHS regulations.
In general, these statutes and regulations require that manufacturers
adhere to certain standards designed to ensure the safety and effectiveness of
medical devices. Under the 1976 Amendments, each
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medical device manufacturer must comply with statutes and regulations applicable
generally to manufacturing practices, clinical investigations involving humans,
sale and marketing of medical devices, post-market surveillance, repairs,
replacements and refunds, recalls, and other matters. The FDA is authorized to
obtain and inspect devices and their labeling and advertising, and to inspect
the facilities in which they are manufactured in order to ensure that a device
is not improperly manufactured or labeled.
The 1976 Amendments also require compliance with specific manufacturing
and quality assurance standards, including regulations promulgated by the FDA
with respect to good manufacturing practices. FDA regulations require that each
manufacturer establish a quality assurance program by which the manufacturer
monitors the manufacturing process and maintains records that show compliance
with the FDA regulations and the manufacturer's written specifications and
procedures relating to the devices. Compliance with the good manufacturing
practices regulation is necessary to receive FDA approval to market new products
and is necessary for a manufacturer to be able to continue to market approved
product offerings.
The FDA makes unannounced inspections of medical device manufacturers
and may issue reports of observations where the manufacturer has failed to
comply with all appropriate regulations and procedures. Failure to comply with
applicable regulatory requirements can, among other consequences, result in
warning letters, civil penalties, injunctions, suspensions or losses of
regulatory clearances, product recalls, seizure or administrative detention of
products, operating restrictions through consent decrees or otherwise, refusal
of the government to approve product license applications or allow a
manufacturer to enter into supply contracts, and criminal prosecution.
There has been a trend in recent years both in the United States and
outside the United States toward more stringent regulation of, and enforcement
of requirements applicable to, medical device manufacturers. The continuing
trend of more stringent regulatory oversight in product clearance and
enforcement activities has caused medical device manufacturers to experience
longer approval cycles, more uncertainty, greater risk and higher expenses. At
the present time, there are no meaningful indications that this trend will be
discontinued in the near-term or the long-term either in the United States or
abroad.
The FDA requires that a new medical device or a new indication for use
of or other significant change in an existing medical device obtain either
510(k) premarket notification clearance or an approved PMA prior to being
introduced into the market in the United States. The 510(k) premarket
notification process is applicable when the new product being submitted to the
FDA can be compared to a pre-existing commercially available product that
performs similar functions (a "substantially equivalent product"). If a product
does not meet the eligibility requirements for the 510(k) process, then it must
be submitted, instead, under the PMA process. The process of obtaining 510(k)
clearance may take at least six months from the date of filing of the
application and generally requires the submission of supporting data, which can
be extensive and extend the process for a considerable length of time. In
addition, the FDA may require review by an advisory panel as a condition for
510(k) clearances, which can further lengthen the process. The PMA process
generally takes more than two years from initial filing and requires the
submission of extensive supporting data and clinical information. In recent
years, there has been a trend for the FDA to require more supporting data with
respect to both 510(k) clearance notifications and PMA filings. Historically,
substantially all of the products of the Company have been submitted to the FDA
under the 510(k) premarket notification clearance process. However, the Company
was informed in early fiscal year 1994 that the N-400 fetal pulse oximeter would
have to be submitted under the PMA process. Moreover, as the Company broadens
is product base, new products could be required to be submitted under the PMA
process rather than the 510(k) process.
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Foreign Regulation
Sales of medical devices outside the United States are subject to
foreign regulatory requirements that vary widely from country to country. The
time required to obtain clearance to sell medical devices in foreign countries
may be longer or shorter than that required for FDA clearance, and requirements
for licensing may differ significantly from FDA requirements. Some countries
have historically permitted human studies earlier in the product development
cycle than regulations in the United States. Other countries, such as Japan,
have standards similar to those of the FDA. This disparity in the regulation of
medical devices may result in more rapid product clearance in certain countries
than in the United States, while clearance in countries such as Japan may
require longer periods than in the United States. In addition, the European
Union has developed a new approach to the regulation of medical products that
may significantly change the situation in those countries. The receipt or
denial of FDA clearance for a particular product may affect the receipt or
denial of regulatory clearance for that product in certain other countries.
FDA/Puritan-Bennett Consent Decree
Puritan-Bennett has been subject to significant FDA enforcement
activity with respect to its operations in recent years. In January 1994,
Puritan-Bennett entered into a consent decree with the FDA pursuant to which
Puritan-Bennett agreed to maintain systems and procedures complying with the
FDA's good manufacturing practices regulation and medical device reporting
regulation in all of its device manufacturing facilities. Under the decree,
domestic shipments of Puritan-Bennett's portable ventilator products and
intra-arterial blood gas monitoring systems were suspended until the FDA could
become satisfied with Puritan-Bennett's manufacturing practices for such
products. Both Burton A. Dole, Jr., Puritan-Bennett's former Chairman,
President and Chief Executive Officer, and John H. Morrow, its former Executive
Vice President and Chief Operating Officer, are parties to the consent decree.
Under the terms of the Agreement and Plan of Merger between the Company and
Puritan-Bennett, following consummation of the acquisition, Mr. Dole became
the Chairman of the Company's Board of Directors and Mr. Morrow became
Executive Vice President of the Company and President of the Company's Home
Health Care Business.
Impact of Puritan-Bennett Consent Decree
Puritan-Bennett has experienced and will continue to experience
incremental operating costs due to ongoing compliance requirements and quality
assurance programs initiated in part as a result of the FDA consent decree. The
Company expects for Puritan-Bennett to continue to incur additional operating
expenses associated with its ongoing regulatory compliance program, but the
amount of these incremental costs currently cannot be completely predicted and
will depend upon a variety of factors, including future changes in statutes and
regulations governing medical device manufacturers and the manner in which the
FDA continues to enforce and interpret the requirements of the consent decree.
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There can be no assurance that the Company will not experience problems
associated with FDA regulatory compliance, including increased general costs of
ongoing regulatory compliance and specific costs associated with the
Puritan-Bennett consent decree. The Company could experience a material adverse
effect on business, operations, profitability and outlook from, among other
things: (i) requirements associated with the Puritan-Bennett consent decree;
(ii) requirements arising from continuing company-wide adherence to quality
assurance and good manufacturing practices; (iii) the results of future FDA
inspections of the operations and facilities of the Company; and (iv) any
modification, extension or adverse interpretation of the Puritan-Bennett consent
decree or any product recall, plant closure or other FDA enforcement activity
with respect to the Company.
Environmental Regulation
The Company is subject to various environmental laws and regulations
both in the United States and abroad. The operations of the Company, like
those of other medical device companies, involve the use of substances
regulated under environmental laws, primarily in the manufacturing and
sterilization processes. While it is difficult to quantify the potential impact
of compliance with environmental protection laws, management believes that such
compliance will not have a material effect on the Company's financial position.
The Company believes that it is substantially in compliance with applicable
environmental laws and regulations.
PRODUCT LIABILITY EXPOSURE
Because most of the Company's products are intended to be used in
hospitals on patients who are physiologically unstable and may be severely ill,
the Company is exposed to serious potential product liability claims. From time
to time, patients on whom the Company's products are being used will sustain
injury or death related to their medical treatment or condition, and this could
lead to product liability claims against the Company. The Company has in fact
received notice of claims of product liability. The Company believes that none
of these claims, either alone or in the aggregate, will have a material adverse
affect on the Company's financial position or results of operation. There is no
assurance, however, that the Company will not in the future be subject to a
claim that could have a material adverse impact on the Company's financial
position, results of operations, reputation or ability to market its products.
The Company presently carries product liability insurance coverage in
amounts which the Company feels are sufficient to protect the Company. However,
it is possible that this coverage could be insufficient to cover claims which
might be made against the Company. The availability and cost of such coverage
varies from time to time and could be affected by product liability claims. At
times in the past, coverage has been more difficult and more expensive to obtain
than at present. There is no assurance that the Company will always be able to
obtain adequate product liability coverage on terms it finds acceptable, or that
the Company will be able to obtain such insurance at all.
EMPLOYEES
At July 2, 1995, the Company had a total of 1788 employees, including
889 employees in the United States, 754 employees in Mexico and 145 employees
in other countries.
Many of the Company's employees are highly skilled, and competition in
recruiting and retaining such personnel is intense in the labor markets in which
the Company operates. Locating persons with experience in regulated industries
is particularly difficult. The Company believes that its continued success
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is predicated in part on its ability to continue to attract highly qualified
management, marketing, medical and technical personnel.
Other than a total of approximately 15 Puritan-Bennett employees,
none of the Company's employees is subject to a collective bargaining
agreement. The Company believes that its relations with its employees are good.
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is information regarding current executive officers who
are not also directors.
NAME AGE POSITION WITH THE COMPANY
--------------------- --- ------------------------------------
Laureen DeBuono 38 Executive Vice President, Human
Resources, General Counsel and
Secretary
Michael P. Downey 48 Executive Vice President,
Chief Financial Officer
Robert L. Doyle 52 Executive Vice President, Worldwide
Sales and Distribution
Russell B. Hays 50 Executive Vice President, President,
Hospital Business
John H. Morrow 50 Executive Vice President, President,
Home Care Business
Kenneth Sumner, Ph.D. 53 Vice President, Regulatory/Clinical
Affairs and Quality Assurance
David B. Swedlow, M.D. 49 Vice President, Medical Affairs and
Technology Development
MS. DEBUONO joined the Company in April 1992 as General Counsel and Secretary
and currently serves as Executive Vice President, Human Resources, General
Counsel and Secretary. Prior to joining the Company, Ms. DeBuono was Division
and Corporate Counsel with The Clorox Company, a diversified consumer products
company, from 1987 to 1992, and Corporate Counsel with Varian Associates, Inc.,
an electronics device company, from 1984 to 1987.
MR. DOWNEY joined the Company in 1986 as Corporate Controller and became Vice
President, Finance in April 1987 and Vice President, Chief Financial Officer in
July 1989. Mr. Downey currently serves as Executive Vice President, Chief
Financial Officer. Prior to joining the Company, Mr. Downey was Vice President,
Finance with Shugart Corporation, a manufacturer of disk drives, from 1984 to
1986.
MR. DOYLE joined the Company upon consummation of the acquisition of
Puritan-Bennett by the Company in August 1995. Mr. Doyle was elected Senior
Vice President of Puritan-Bennett in 1988 and became Senior Vice President,
Marketing in 1991.
MR. HAYS joined the Company in June 1995. Prior to joining the Company, Mr. Hays
served as the President and Chief Executive Officer of Sequenom from 1993 to
1995. Previously, Mr. Hays served as President and Chief Executive Officer of
Enzytech, Inc. from 1992 to 1993, and in various capacities at Baxter Healthcare
Corporation from 1985 to 1992. He also served as a General Manager at Stryker
21
22
Corporation from 1981 to 1985 and in various capacities at Baxter Travenol
Laboratories, Inc. from 1976 to 1981.
MR. MORROW joined the Company upon consummation of the acquisition of
Puritan-Bennett by the Company in August 1995. Mr. Morrow was elected Vice
President of Puritan-Bennett in 1979 and has served as its Executive Vice
President and Chief Operating Officer since 1989. Prior to joining
Puritan-Bennett, Mr. Morrow was a management consultant with McKinsey &
Company, Inc. from 1970 to 1979.
MR. SUMNER joined the Company in September 1994 as Vice President, Regulatory/
Clinical Affairs and Quality Assurance. Immediately prior to joining the
Company, Mr. Sumner served as Vice President, Regulatory Affairs and Quality
Assurance with Cytyc Corporation, a privately-held medical device company. From
1990 to 1993, Mr. Sumner was with the Cardiology Group of C.R. Bard, Inc. as
Vice President, Medical and Regulatory Affairs, and, from 1980 to 1990, Mr.
Sumner was Director of Clinical and Regulatory Affairs at Zimmer, Inc., an
orthopedic medical device division of Bristol-Myers Squibb, Co.
DR. SWEDLOW joined the Company in June 1987 as Vice President, Medical Affairs
and currently serves as Vice President, Medical Affairs and Technology
Development. Prior to joining the Company, Dr. Swedlow was employed by the
University of Pennsylvania as an Assistant Professor of Anesthesia and
Pediatrics at the University of Pennsylvania School of Medicine and as an
Anesthesiologist and Critical Care Attending Physician and Director of Research
in the Department of Anesthesia and Critical Care of The Children's Hospital of
Philadelphia.
Compliance with Section 16(a) of the Securities Exchange Act of 1934.
Section 16(a) of the Securities and Exchange Act of 1934, as amended,
requires the Company's executive officers and directors to file reports of
beneficial ownership on Form 3 and changes in beneficial ownership on Forms 4 or
5 with the Securities and Exchange Commission ("SEC"). Executive officers and
directors are also required by SEC rules to furnish the Company with copies of
all Section 16(a) reports filed. As part of a Section 16 compliance program
established by the Company for its executive officers and directors, the Company
undertakes to file these reports on their behalf. Based solely on its review of
the Forms 3 and 4 filed on behalf of its executive officers and directors, as
well as written representations from these individuals that no Form 5 filings
are required, the Company believes that, during the fiscal year ended July 2,
1995, all Section 16(a) filing requirements applicable to its executive officers
and directors were complied with pursuant to SEC rules.
ITEM 2. PROPERTIES.
The Company's headquarters occupy a newly constructed 141,000 square
foot two-story facility built for the Company in Hacienda Business Park,
Pleasanton, California. The Pleasanton facility is being leased under a lease
with an initial 12-1/2 year term with options to renew for two additional
five-year periods at a rent approximating the then fair market value.
The Company also maintains its manufacturing facilities and related
offices in 90,000 square feet in Chula Vista, California (near San Diego) and
60,000 square feet in Tijuana, Mexico, occupied under leases expiring in March
2000 and December 1994, respectively (the lease expiring in December 1994 has 9
one-year renewal options). The Company leases additional office space in Lenexa,
Kansas, which is used
22
23
for certain of the Company's research and development, and Coral Springs,
Florida, which is used to service Latin America . EdenTec maintains leased
facilities in Eden Prairie, Minnesota. The Company leases additional space for
its international operations in the Netherlands, France, United Kingdom,
Belgium, Germany, Spain and Hong Kong.
With the acquisition of Puritan-Bennett, the Company has acquired
additional owned and leased facilities. The Company believes that its
facilities are adequate for its space requirements through fiscal 1996. If
additional space is required in the future, the Company believes that suitable
facilities can readily be leased on commercially reasonable terms.
ITEM 3. LEGAL PROCEEDINGS.
From time to time, the Company has received, and in the future may
receive, notice of claims against it, which in some instances have developed, or
may develop, into lawsuits. The claims may involve such matters, among others,
as product liability, patent infringement and employment related claims. In
management's opinion, the ultimate resolution of claims currently pending,
either individually or in the aggregate, will not have a material adverse effect
on the Company's financial condition or results of operations. There can be no
assurance that the Company's financial condition or results of operations will
not be materially adversely affected as a result of future claims that may be
commenced against the Company.
In September 1984, the Company was sued for patent infringement
relating to its pulse oximeters by BOC Health Care, Inc. ("BOC"), the parent
corporation of Ohmeda, Inc. ("Ohmeda"), one of the Company's principal
competitors. In June 1986, the parties settled and agreed to dismiss BOC's
infringement claims and the Company's antitrust and unfair competition
counterclaims. As part of the settlement, the parties consented to a judgment
that the BOC patent was valid and entered into cross licenses of certain
oximetry patents, and applications therefor, of each party for the duration of
the applicable patents.
On August 26, 1992, the Company brought an action in U.S. District
Court for declaratory judgment against Camino Laboratories, Inc. (San Diego, CA)
("Camino") seeking a judgment that the Company's pulse oximeter systems and
sensor products do not infringe United States Patent No. 4,446,715 or
Reexamination Certificate B1 4,446,715, owned by Camino. The Company filed an
amended complaint on September 1, 1992, adding a count for declaratory judgment
that Camino's claims were barred in whole or in part by laches. On September 17,
1992, Camino filed an answer, jury demand and counterclaim against the Company,
asserting that the Company's oximeters and sensors infringe Camino's patent and
seeking damages for past infringement and an injunction against future
infringement.
In the fourth quarter of fiscal year 1994, the Company agreed to settle
its patent litigation with Camino. Under the terms of the settlement, Camino
agreed not to sue the Company or its current or future customers relating to the
use or sale of the Company's sensors and monitors intended for use with such
sensors. A cash payment of $15 million was made by the Company to Camino and was
recorded as a non-operating expense. This settlement neither recognizes the
validity nor acknowledges infringement of the Camino patent at issue.
On December 10, 1992, the Company brought an action in Alameda County
Superior Court, Eastern Division, State of California, for misappropriation of
trade secrets, unfair competition and for return of property against BOC and
Square One Technology ("Square One"). On December 18, 1992, the Company filed
an amended complaint naming Daniel S. Goldberger, a former Company employee and
partner in Square One, as an individual defendant. The Company sought damages,
assignment of patent rights and injunctive relief to bar BOC, Square One and Mr.
Goldberger from continuing to sell a pulse
23
24
oximeter sensor based on a trade secret design that the Company claimed was
developed at the Company and was misappropriated by Square One and Mr.
Goldberger.
Also on December, 10, 1992, BOC, Square One and Mr. Goldberger brought
an action in United States District Court for the District of Delaware against
the Company, seeking a declaratory judgment that certain patents of the Company
were invalid and/or not infringed by the manufacture, use or sale of the BOC
pulse oximeter sensor which was the subject matter of the California Superior
Court action described above.
In the third quarter of fiscal year 1994, the Company agreed to settle
the trade secrets litigation with BOC and Square One. Under the terms of the
agreement, the patent in issue was assigned to the Company. The Company also
received a pretax $2 million payment and will receive ongoing royalties. The $2
million payment was recorded as non-operating income.
In July 1995, the U.S. Federal District Court in Delaware issued a
decision in favor of the Company, ruling that four key oximeter and sensor
technology patents are valid and would be infringed by Ohmeda, if Ohmeda sold
either its adult or neonatal OxyTip sensors for use with non-Ohmeda monitors.
BOC has filed notice of its intention to appeal the decision of the court.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY OWNERS.
None
24
25
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's common stock is traded on the Nasdaq National Market
under the symbol NELL. The following table sets forth the high and low prices
for the Company's common stock as reported in that system for each quarter in
the Company's fiscal years 1995 and 1994. These prices reflect interdealer
prices, without retail mark-up, mark-down or commission.
HIGH LOW
---- ---
Fiscal 1995:
Fourth Quarter............. $47.75 $36.00
Third Quarter.............. 38.25 31.50
Second Quarter............. 34.00 28.25
First Quarter.............. 31.50 26.00
Fiscal 1994:
Fourth Quarter............. 28.75 24.375
Third Quarter.............. 29.50 24.25
Second Quarter............. 26.50 19.75
First Quarter.............. 23.50 19.00
At September 1, 1995, the Company had approximately 1,586
stockholders of record (not including beneficial holders of stock held in
street name). The Company has not paid or declared dividends on its common
stock. The Company presently intends to retain its earnings for use in its
business and therefore does not anticipate paying any cash dividends in the
foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA.
The following table presents the Company's historical financial results
prior to the Company's acquisition of Puritan-Bennett on August 25, 1995.
SELECTED FINANCIAL DATA
Years ended
----------------------------------------------------------
(In thousands, except per JULY 2, JULY 3, JULY 4, JULY 5, JULY 7,
share amounts) 1995 1994 1993 1992 1991
Net revenue $ 264,040 $ 234,972 $ 218,186 $ 196,164 $ 158,929
Gross profit 160,859 141,266 129,424 117,067 86,962
Income from operations 54,345 42,851 37,837 30,987 22,360
Litigation settlements - (13,000) - - -
Income before income
taxes 59,947 32,998 40,846 34,342 25,812
Net income 37,165 20,557* 25,120 21,293 16,262
Net income per share 2.20 1.22* 1.50 1.31 1.05
Working capital 170,823 154,827 143,686 108,527 96,201
Total assets 296,469 238,148 225,606 188,654 142,836
Stockholders' equity 240,721 204,113 192,464 154,492 121,384
25
26
No cash dividends have been declared or paid in the five-year period ended July
2, 1995
*Net of after-tax charge of $8.0 million ($0.48 per share) from litigation
settlements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The section labeled "Management's Discussion and Analysis of Financial
Condition and Results of Operations" appearing on pages 34 through 38 of the
Company's 1995 Annual Report to Stockholders is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Report of Independent Accountants appearing on page 39, the
Consolidated Financial Statements and Notes to Consolidated Financial Statements
appearing on pages 19 through 33, and the section entitled "Selected Quarterly
Data" appearing on page 39 of the Company's 1995 Annual Report to Stockholders,
are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
26
27
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
(a) The section labeled "Proposal One -- Election of Directors"
appearing on pages 2 through 19 of the Company's Proxy Statement dated September
15, 1995 and filed with the Securities and Exchange Commission on the same date
is incorporated herein by reference.
(b) Information concerning the Company's executive officers who are
not directors is set forth in Part I of this Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
The sections labeled "Executive Compensation" and "Compensation Committee
Report on Executive Compensation", appearing on pages 9 through 18 of the
Company's Proxy Statement dated September 15, 1995 are incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The section labeled "Beneficial Owners of Voting Securities" appearing on
pages 7 and 8 of the Company's Proxy Statement dated September 15, 1995 is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The section labeled "Indebtedness of Management" appearing on page 14 of
the Company's Proxy Statement dated September 15, 1995 are incorporated herein
by reference.
27
28
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. INDEX TO FINANCIAL STATEMENTS
THE FOLLOWING FINANCIAL STATEMENTS ARE INCLUDED IN THE COMPANY'S 1995
ANNUAL REPORT TO STOCKHOLDERS AND ARE INCORPORATED HEREIN BY REFERENCE PURSUANT
TO ITEM 8:
PAGE IN 1995
ANNUAL REPORT
TO STOCKHOLDERS
---------------
Consolidated Balance Sheet at July 2, 1995 and July 3, 1994 19
Consolidated Statement of Income for each of the three years in the
period ended July 2, 1995 20
Consolidated Statement of Stockholders' Equity for each of the three
years in the period ended July 2, 1995 21
Consolidated Statement of Cash Flows for each of the three years in the
period ended July 2, 1995 22
Notes to Consolidated Financial Statements 23-33
Report of Independent Accountants 39
Selected Quarterly Data (Unaudited) 39
2. INDEX TO FINANCIAL STATEMENT SCHEDULES
All schedules are omitted because they are not applicable or not required
or because the required information is included in the consolidated financial
statements or notes thereto.
28
29
3. EXHIBITS
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
2.1 Agreement and Plan of Merger, dated as of May 21, 1995, as
amended, among Registrant, a wholly-owned subsidiary of
Registrant and Puritan-Bennett Corporation (filed as Annex A
to Form S-4 Registration Statement No. 33-61169 and
incorporated herein by reference).
2.2 Amendment No. 1 to Agreement and Plan of Merger, dated as of
June 30, 1995, among Registrant, a wholly-owned subsidiary of
Registrant and Puritan-Bennett Corporation (filed as Annex B
to Form S-4 Registration Statement No. 33-61169 and
incorporated herein by reference).
3.1 Restated Certificate of Incorporation of Registrant (filed as
Exhibit 3.1 to the Report on Form 10-K for the year ended July
7, 1991 and incorporated herein by reference).
3.2 Certificate of Determination of Preferences of Series A Junior
Participating Preferred Stock (filed as Exhibit 3.2 to the
Report on Form 10-K for the year ended July 7, 1991 and
incorporated herein by reference).
3.3 By-laws of Registrant, as amended (filed as Exhibit 3.3 to the
Report on Form 10-K for the year ended July 3, 1994 and
incorporated herein by reference).
4.1 Rights Agreement, dated as of September 1, 1992, between
Registrant and The First National Bank of Boston, as Rights
Agent (incorporated by reference to Exhibit 2.1 of Amendment
No. 1 to the Registrants' Registration Statement as Form 8-A
filed with the Commission on July 13, 1995). Reference is
also made to Exhibits 3.1, 3.2 and 3.3.
4.2 Credit Agreement, dated as of November 16, 1994, entered into
by Registrant, the Banks Named Therein and ABN AMRO Bank N.V.,
San Francisco International Branch, as Agent (filed as
Exhibit 10.1 to the Report on Form 10-Q for the period ended
January 1, 1995 and incorporated herein by reference).
10.1 Lease Agreement dated August 17, 1983 between Registrant and
Crow-Spieker-Singleton #87, together with Lease Amendment No.
One thereto, dated January 3, 1994, Lease Amendment No. Two
thereto, dated as of May 5, 1986, and related letters dated
July 31, 1984 and October 15, 1984 (filed as Exhibit 10.1 to
Form S-1 Registration Statement No. 33-8211, filed August 22,
1986 and incorporated herein by reference).
10.2 Lease Agreement dated March 31, 1986 between Registrant and
Crow-Spieker-Singleton #115 (filed as Exhibit 10.2 to Form S-1
Registration Statement No. 33-8211, filed August 22, 1986 and
incorporated herein by reference).
10.3 Letters dated June 17, 1987 and April 28, 1987 relating to the
terms of the Lease Agreement listed as Exhibits 10.1 and 10.2
(filed as Exhibit 10.4 to the Report on Form 10-K for the year
ended June 28, 1987 and incorporated herein by reference).
10.4 Lease Agreement dated October 21, 1987 between egistrant and
Crow-Spieker-Singleton #87 (filed as Exhibit 19.1 to the Report
on Form 10-Q for the period ended December 27, 1987 and
incorporated herein by reference).
10.5 Lease Agreement dated July 10, 1989 between egistrant and Baja
de Mar, S.A. de C.V. (filed as Exhibit 10.14 to the Report on
Form 10-K for the year ended July 2, 1989 and incorporated
herein by reference).
29
30
10.6 Lease Agreement dated February 1, 1990 between Registrant and
Eastlake Development Company (filed as Exhibit 19.1 to the
Report on Form 10-Q for the period ended April 1, 1990 and
incorporated hereby by reference).
10.7 First Amendment dated September 26, 1990 to Lease Agreement
listed as Exhibit 10.6 (filed as Exhibit 10.13 to the Report on
Form 10-K for the year ended July 1, 1990 and incorporated
herein by reference).
10.8 Lease Agreement dated April 18. 1991 between Registrant and
Britannia Developments, Inc. (filed as Exhibit 10.8 to the
Report on Form 10-K for the year ended July 7, 1991 and
incorporated herein by reference) and the First Amendment to
the Lease Agreement dated February 13, 1992 between the
Registrant and Britannia Developments, Inc.
10.9 Settlement Agreement effective as of June 1, 1986 between
Registrant and The BOC Group (portions with respect to which
confidentiality has been requested were filed separately with
the request for confidential treatment) (filed as Exhibit 10.4
to Amendment No. 3 to Form S-1 Registration Statement No.
33-8211, filed April 16, 1987 and incorporated herein by
reference).
10.10 Settlement Agreement dated as of December 15, 1986 between
Registrant and Robert F. Shaw and related documents (filed as
Exhibit 10.21 to Amendment No. 3 to Form S-1 Registration
Statement No. 33-8211, filed April 16, 1987 and incorporated
herein by reference).
*10.11 Registrant's 1982 Incentive Stock Option Plan, as amended
(filed as Exhibit 10.16 to the Report on Form 10- K for the
year ended June 26, 1988 and incorporated herein by reference),
and forms of documents in connection with the 1982 Plan (filed
as Exhibit 28.1 to Amendment No. 1 to Form S-8 Registration
Statement No. 33-16590, filed August 31, 1987 and incorporated
herein by reference).
*10.12 Registrant's 1985 Equity Incentive Plan, as amended filed as
Exhibit 10.22 to the Report on Form 10-K for the year ended
July 1, 1990 and incorporated herein by reference) and forms of
documents used in connection with the 1985 Plan (filed as
Exhibit 10.22 to the Report on Form 10-K for the year ended
July 1, 1990 and incorporated herein by reference).
*10.13 Registrant's 1988 Stock Option Plan for Non-Employee Directors
and forms of documents used in connection with such Plan, as
amended (filed as Exhibit 10.13 to the Report on Form 10-K for
the year ended July 7, 1991 and incorporated herein by
reference).
*10.14 Registrant's 1991 Equity Incentive Plan (filed as Exhibit 10.14
to the Report on Form 10-K for the year ended July 7, 1991 and
incorporated herein by reference).
*10.15 Notice of Grant of Stock Options and Stock Option Grant
Agreement dated March 30, 1988 between Registrant and Frederick
M. Grafton (filed as Exhibit 10.21 to the Report on Form 10-K
for the year ended June 26, 1988 and incorporated herein by
reference).
30
31
10.16 Fourth Amended Registration Rights Agreement dated as of
December 31, 1984, January 15, 1985, March 6, 1985, March 29,
1985 and April 19, 1985 between Registrant and certain
purchasers of its securities (filed as Exhibit 10.15 to Form
S-1 Registration Statement No. 33-8211, filed August 22, 1986
and incorporated herein by reference).
10.17 Amendment to Fourth Amended Registration Rights Agreement
listed as Exhibit 10.16 dated as of August 19, 1986 (filed as
Exhibit 10.21 to Amendment No. 1 to Form S-1 Registration
Statement No. 33-8211, filed September 10, 1986 and
incorporated herein by reference).
10.18 Second Amendment to Fourth Amended Registration Rights
Agreement listed as Exhibit 10.16 dated as of December 24, 1986
(filed as Exhibit 10.20 to Amendment No. 3 to Form S-1
Registration Statement No. 33- 8211, filed April 16, 1987 and
incorporated herein by reference).
*10.19 Indemnification Agreement dated as of June 17, 1986 between
Registrant and Robert S. Smith (filed as Exhibit 10.16 to Form
S-1 Registration Statement No. 33-8211, filed August 22, 1986,
and incorporated herein by reference).
*10.20 Form of Indemnification Agreement entered into between
Registrant and each of its directors, current officers and one
former officer (filed as Exhibit 10.22 to Amendment No. 3 to
Form S-1 Registration Statement No. 33-8211, filed April 16,
1987 and incorporated herein by reference).
10.21 License Agreement between Registrant and Andros Analyzers
Incorporated dated October 30, 1987 (portions with respect to
which confidentiality has been requested were filed separately
with the request for confidential treatment) (Filed as Exhibit
10.37 to the Report on Form 10-K for the year ended June 26,
1988 and incorporated herein by reference).
*10.22 Letter agreement between Registrant and Paul J. Malloy, dated
September 11, 1989 (filed as Exhibit 10.18 to the Report on
Form 10-K for the year ended July 2, 1989 and incorporated
herein by reference), letter agreement between Registrant and
James E. Corenman, dated May 19, 1989 (filed as Exhibit 10.19
to the Report on Form 10-K for the year ended July 2, 1989 and
incorporated herein by reference), letter agreement and letter
of indemnification between Registrant and Robert S. Smith dated
August 5, 1989 (filed as Exhibit 10.20 to the Report on Form
10-K for the year ended July 2, 1989 and incorporated herein by
reference), letter agreement between Registrant and Charles C.
Wilson dated October 5, 1989 (filed as Exhibit 10.35 to the
Report on Form 10-K for the period ended July 1, 1990 and
incorporated herein by reference), letter agreement between
Registrant and L. Jack Lloyd dated March 16, 1990 (filed as
Exhibit 10.36 to the Report on Form 10-K for the period ended
July 1, 1990 and incorporated herein by reference) and letter
agreement between Registrant and Tibor Foldvari dated June 27,
1990 (filed as Exhibit 10.37 to the Report on Form 10- K for
the period ended July 1, 1990 and incorporated herein by
reference).
31
32
*10.23 Agreement and General Release dated as of July 24, 1991 between
Registrant and Lauren F. Yazolino (filed as Exhibit 10.23 to
the Report on Form 10-K for the year ended July 7, 1991 and
incorporated herein by reference) and the First Amendment to
the Agreement and General Release dated May 1, 1992.
*10.24 Employment Agreement dated effective as of May 23, 1989 between
Registrant and Virginia Perry, Vice President, Quality
Assurance and Regulatory Affairs (filed as Exhibit 10.38 to the
Report on Form 10-K for the period ended July 1, 1990 and
incorporated herein by reference).
*10.25 Employment Agreement dated as of September 2, 1991 between
Registrant and Theodore H. Toch, Vice President and General
Manager, Instruments (filed as Exhibit 10.25 to the Report on
Form 10-K for the year ended July 7, 1991 and incorporated
herein by reference).
10.26 Agreement and Plan of Reorganization dated as of March 2, 1990
by and among Registrant, Nellcor Merger Corporation, Radiant
Systems, Inc., Jeffrey J. Alholm and Edward Kleban and related
Letter Agreement and Exchange Agreement (filed as Exhibits
19.2, 19.3 and 19.4 to the Report on Form 10-Q for the period
ended April 1, 1990 and incorporated herein by reference).
10.27 Buy-Sell Agreement for Rights and Products between Registrant
and Colin Medical Instruments dated April 23, 1990, as amended
July 24, 1990 (filed as Exhibit 10.34 to the Report on Form
10-K for the period ended July 1, 1990 and incorporated herein
by reference).
10.28 Amendment dated February 8, 1991 to the Buy-Sell Agreement for
the Rights and Products listed as Exhibit 10.27 (filed as
Exhibit 10.28 to the Report on Form 10-K for the period ended
July 7, 1991 and incorporated herein by reference) and the
Third Amendment dated June 1, 1992 to the Buy-Sell Agreement
aforementioned.
10.29 Stock Purchase Agreement dated August 12, 1991 among
Registrant, EdenTec Corporation and the Stockholders and
Optionholders of EdenTec Corporation and related Employment
Agreements between Registrant and Edward Schuck and Bruce
Bowman, respectively (filed as Exhibit 10.29 to the Report on
Form 10-K for the year ended July 7, 1991 and incorporated
herein by reference).
10.30 Asset Purchase Agreement dated September 20, 1991 among
Registrant, Fenem, Inc., Carl Fehder, M.D. and Edward
Nemerovsky (filed as Exhibit 10.30 to the Report on Form 10-K
for the year ended July 7, 1991 and incorporated herein by
reference).
*10.31 Letter agreement dated November 1, 1992, regarding Offer of
Employment between Registrant and David J. Illingworth (filed
as Exhibit 10.31 to the Report on Form 10-K for the year ended
July 4, 1993 and incorporated herein by reference).
32
33
*10.32 Promissory Note secured by Deed of Trust, dated February
18, 1993 made by David J. Illingworth in favor of
Registrant (filed as Exhibit 10.32 to the Report on Form
10-K for the year ended July 4, 1993 and incorporated
herein by reference).
*10.33 Separation Agreement and General Release between
Registrant and Theodore H. Toch dated as of January 15,
1993 (filed as Exhibit 10.33 to the Report on Form 10-K
for the year ended July 4, 1993 and incorporated herein
by reference).
*10.34 Separation Agreement and General Release between
Registrant and Walter J. McBride dated as of March 9,
1993 (filed as Exhibit 10.34 to the Report on Form 10-K
for the year ended July 4, 1993 and incorporated herein
by reference).
*10.35 Separation Agreement between Registrant and Robert M.
Johnson dated November 24, 1993 (filed as Exhibit 10.35
to the report on Form 10K for the year ended July 3,
1994 and incorporated herein by reference).
*10.36 Agreement between Registrant and Virginia Perry dated
March 16, 1994 (filed as Exhibit 10.36 to the report on
Form 10K for the year ended July 3, 1994 and
incorporated herein by reference).
*10.37 Separation Agreement between Registrant and Julio
Guardado dated May 16, 1994 (filed as Exhibit 10.37 to
the report on Form 10K for the year ended July 3, 1994
and incorporated herein by reference).
*10.38 Separation Agreement between Registrant and Patricia E.
Bashaw dated May 27, 1994 (filed as Exhibit 10.38 to the
report on Form 10K for the year ended July 3, 1994 and
incorporated herein by reference).
*10.39 Agreement between Registrant and David L. Schlotterbeck
dated June 13, 1994 (filed as Exhibit 10.39 to the
report on Form 10K for the year ended July 3, 1994 and
incorporated herein by reference).
*10.40 Forms of Chief Executive Officer, Executive Officer and
Key Employee Severance Agreements (filed as Exhibits
10.2, 10.3 and 10.4 to the Report on Form 10Q for the
period ended January 1, 1995 and incorporated herein
by reference).
*10.41 Registrant's 1994 Equity Incentive Plan, as amended
(filed as Exhibit 4.5 to Form S-8 Registration Statement
No. 33-87490 and incorporated herein by reference).
*10.42 Registrant's 1995 Merger Stock Incentive Plan (filed as
Exhibit 4.5 to Form S-8 Registration Statement No.
33-62465 and incorporated herein by reference).
11.1 Statement of computation of Net Income per share.
13.1 Excerpts from 1995 Annual Report to Stockholders.
21.1 List of Subsidiaries (filed as Exhibit 21.1 to the
Report on Form 10K for the year ended July 3, 1994 and
incoroprated herein by reference).
23.1 Consent of Independent Accountants (Price Waterhouse).
Reference is made to page S-1 hereof.
27 Financial Data Schedule
- -------
* An asterisk next to the number of an exhibit indicates that the exhibit
is a management contract or compensatory plan or arrangement.
33
34
(b) REPORTS ON FORM 8-K
Form 8-K dated March 13, 1995, filed April 3, 1995, reporting (i) the
acquisition of Pierre Medical by EdenTec Corporation, the Company's home health
care subsidiary, and (ii) a $2.1 million equity investment by the Company in
Heartstream, Inc. Each of these disclosures were pursuant to Item 5 ("Other
Event").
Form 8-K dated May 21, 1995, filed May 23, 1995, reporting the entering
into by the Company and Puritan-Bennett Corporation of an Agreement and Plan of
Merger dated as of May 21, 1995 pursuant to Item 5 ("Other Event").
34
35
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
NELLCOR PURITAN BENNETT INCORPORATED
By: /s/ C. Raymond Larkin, Jr.
-------------------------------------
C. Raymond Larkin, Jr.
President and Chief Executive Officer
Date: September 29, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated
SIGNATURE TITLE DATE
--------- ----- ----
/s/ C. Raymond Larkin, Jr.
- ------------------------------ Director, President and Chief September 29, 1995
C. Raymond Larkin, Jr. Executive Officer (Principal
Executive Officer)
/s/ Burton A. Dole, Jr.
- ------------------------------ Director, Chairman of September 29, 1995
Burton A. Dole, Jr. the Board
/s/ Michael P. Downey
- ------------------------------ Executive Vice President September 29, 1995
Michael P. Downey and Chief Financial Officer
(Principal Financial &
Accounting Officer)
/s/ Robert J. Glaser, M.D.
- ------------------------------ Director September 29, 1995
Robert J. Glaser, M.D.
/s/ Frederick M. Grafton
- ------------------------------ Director September 29, 1995
Frederick M. Grafton
/s/ Donald L. Hammond
- ------------------------------ Director September 29, 1995
Donald L. Hammond
/s/ Thomas A. McDonnell
- ------------------------------ Director September 29, 1995
Thomas A. McDonnell
35
36
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Walter J. McNerney
- ------------------------------ Director September 29, 1995
Walter J. McNerney
/s/ Edwin E. van Bronkhorst
- ------------------------------ Director September 29, 1995
Edwin E. van Bronkhorst
36
37
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-16590, 33-25586, 33-25587, 33-32521, 33-38241,
33-45010, 33-87490, 33-87492, 33-87496, 33-62463, and 33-62465) of Nellcor
Incorporated of our report dated July 26, 1995, except as to Note 11, which is
dated as of August 24, 1995, appearing on page 39 of the Annual Report to
Stockholders which is incorporated in this Annual Report on Form 10-K for the
year ended July 2, 1995.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
San Francisco, California
September 29, 1995
S-1