Puritan-Bennett Corporation

9401 Indian Creek Parkway
P.O. Box 25905
Overland Park, Kansas 66225-5905
U.S.A.
(913) 661-0444
Fax: (913) 661-0234

Public Company
Incorporated: 1913 as Oxygen Gas Company
Employees: 2,600
Sales: $309 million
Stock Exchanges: NASDAQ
SICs: 3841 Surgical & Medical Instruments; 3842 Surgical Appliances & Supplies; 3728 Aircraft Parts & Equipment Not Elsewhere Classified; 2813 Industrial Gases

The Puritan-Bennett Corporation, headquartered in Overland Park, Kansas, with research and manufacturing facilities in the United States, Canada, France, Ireland, and Mexico, is one of the world’s leading manufacturers of respiratory products for the health care and aviation markets. The first company to produce oxygen west of the Mississippi, Puritan-Bennett has been known throughout its history as a leader in creating innovative medical technology and is widely recognized for developing such products as the MA-1 Volume Ventilator, which virtually replaced the cumbersome iron lung, and the 7200 Microprocessor Ventilator, which has become one of the most widely used ventilator systems in the world. In addition to being the largest producer of several types of liquid oxygen systems, the company is the world’s second largest supplier of diagnostic and therapeutic sleep products. The company’s organizational structure consists of the Puritan group, which manufactures mostly home care and gas products; the Bennett group, which oversees most of the company’s hospital products; and Aero Systems, which supplies emergency oxygen systems for commercial and private aircraft. Although the company has been traditionally best known for producing life-support equipment for hospitals, the movement of the health care industry as a whole toward home care has brought about a shift in focus. While roughly 60 percent of the company’s 1994 total revenue still came from the sale of hospital/physician office products, home care equipment, most of which is used to meet the supplementary oxygen needs of patients suffering from chronic bron-chitis, emphysema, and other respiratory diseases, represents the fastest growing segment of the company.

Puritan-Bennett was founded in 1913 by Parker B. Francis as a manufacturer and distributor of oxygen and hydrogen. Although the company, known at the time as the Oxygen Gas Company, originally directed sales toward the welding industry, its founder had the foresight to perceive that the experimental use of nitrous oxide coupled with oxygen would one day replace ether as the anesthetic of choice and place his company at the forefront of the surgical gas industry.

Despite the company’s inauspicious first month of operation—$186 in revenue compared to $1,150 in expenses—Francis persevered, and with the onset of World War I, his company received the opportunity to make a vital contribution to the war effort and solidify its financial base at the same time. Not only would large quantities of oxygen and nitrous oxide be needed to provide countless medical services, but hydrogen, a by-product of the oxygen manufacturing process, was in high demand by the military to support the rapidly expanding dirigible business.

Following the war, Francis, an ardent supporter of the newly formed National Anesthesia Research Society, devoted much of his energy to improving the purity and bottling of nitrous oxide. In an effort to distinguish itself from the growing number of “oxygen companies,” the company entered the 1920s with a new name, the Kansas City Oxygen Company, as it continued to expand the distribution of its products geographically. In 1923, while the demand for oxygen exceeded the company’s production, the demand for hydrogen fell considerably. In an attempt to combat this problem, the company purchased its first oxygen liquefaction plant and entered the liquid oxygen industry. Five years later, Puritan, in conjunction with several other industry leaders, adopted a uniform color scheme for medical gases.

While the Great Depression forced many companies to shut down operations or at least reduce its work force, the Puritan Compressed Gas Corporation, as it became known in 1931, continued to expand and never had to lay off an employee. Moreover, while President Franklin D. Roosevelt had ordered the closing of all the country’s banks, the company paid its employees in cash. The company’s success was due in part to its ability to take advantage of a number of new market opportunities. For instance, after witnessing several unexplained airplane crashes between 1930 and 1936—accidents that investigators believed were caused by pilots who blacked out at high altitudes because they lacked sufficient oxygen—Francis developed an oxygen mask that helped to solve the problem and paved the way for a new aerospace division for his company at the same time.

In 1937, the destruction of the German hydrogen dirigible, the Hindenburg, brought another opportunity for Puritan to introduce a safer gas product. The tragedy exposed the highly flammable properties of hydrogen and led the U.S. government and private companies to search for better alternatives. The ensuing repeal of the ban on helium enabled Puritan to conduct extensive research in the use of helium/oxygen mixtures in ventilating patients with severe respiratory problems. And in 1938, following widespread customer approval, Puritan added helium to its line of gas products. That same year the company made another entrance into the medical field by manufacturing one of its first pieces of medical equipment, the “Puritan Portable Oxyaerator,” an oxygen humidifier. The publicity the company received during the 1930s for its highly successful aviation oxygen masks placed the company at the forefront of oxygen therapy technology.

In 1941, Puritan set up one of the first cascade oxygen filling systems in Baltimore, and by 1944 had begun producing a full line of cylinder valves for both military and civilian uses. The mid-1940s, of course, saw the company devote most of its attention to manufacturing war-related products, supplying the military, medical, and industrial fields with oxygen, medical gases, oxygen equipment, and industrial tools. As the war drew to a close, Puritan took advantage of bargain prices on previously unavailable machine tools of all kinds to build one of the finest machine shops in the industry. The end of the war also enabled the company to return to its emphasis on civilian research. In 1946, Baylor University asked the company to improve upon the non-sterile conditions caused by bringing oxygen cylinders off the street into the hospital nursery. By adapting a special type of coupler used by welders to a piped outlet in the hospital, the company solved the problem and created the first “quick connect” in the medical piping industry. By the end of the decade, the company featured a full line of regulators, flowmeters, and adaptors; in 1951 the company published its first piping systems catalog.

The 1950s proved to be a decade of transition and expansion for the company. In 1956, the company acquired V. Ray Bennett and Associates, Inc.; a year later its name was changed to Bennett Respiration Products, Inc. That same year, Parker B. Francis handed over control of the company to his sons, Parker B. Francis III and John B. Francis, and the company expanded its medical catalog offerings to include almost all of the items that served the medical gas piping industry into the 1990s. Two years later, specially trained and licensed Puritan-Bennett dealers were given the authority to fill gas cylinders within their own locations, significantly reducing the company’s overall packaging costs. Another major improvement in efficiency occurred that same year when Pure Maid Products Inc., a wholly owned subsidiary, opened the company’s first automated nitrous oxide production facility. Once in full operation, the state-of-the-art plant manufactured nearly 600 percent more gas per day than the one it replaced.

Technological innovation and market expansion also characterized the 1960s. While adding such products as the bubble jet and a heated humidifier to its oxygen therapy line, Puritan introduced a series of new manual resuscitators and suction equipment. Perhaps the most important development of the decade, however, was the 1967 introduction of the MA-1 Volume Ventilator, which assisted a patient’s breathing and controlled respiration should the patient stop breathing. By virtually replacing the cumbersome iron lung, the MA-1 not only brought the company to the forefront of this market but made the Bennett name recognizable in the larger medical equipment field. Having exported products to Latin America as early as the 1930s, the company also began placing more of an emphasis on its international business, opening its first Canadian facility in Toronto and its first sales office in the Far East. In 1968, a year that saw revenue surpass the $20 million mark for the first time, the parent company reorganized itself as the Puritan-Bennett Corporation and consolidated its medical marketing department into a single unit.

Profits continued to rise steadily during the next decade as Puritan-Bennett entered the home health care market and made several important acquisitions. After purchasing a number of home care distributorships, the company formed a new marketing department under the name Medical; however, after three years of modest success, all but a single Miami unit were sold. Despite this inauspicious beginning, the company’s commitment to alternative health care markets remained strong throughout the decade. Meanwhile, Puritan-Bennett’s aviation division was given a boost through the purchase of the Zep Company, the leading manufacturer of oxygen systems for general aircraft, and the Wemac Company, the largest producer of air venting equipments used in the overhead passenger units of commercial and general aircraft. By the end of the 1970s, net sales had climbed to more than $80 million, an increase of nearly 400 percent during the decade.

During the early 1980s, Puritan-Bennett fell behind some of the industry leaders in technology and the company’s sales and profits fell accordingly: revenue increased only four percent between 1981 and 1984, and the company lost money in 1982 and 1984. But in 1986, under the direction of president and CEO Burton A. Dole, Jr., the company rebounded strongly, recording a jump of more than 21 percent from the previous year. The turnaround was largely the result of the success of one of the company’s best-known products: the 7200 Microprocessor Ventilator. First made available in 1983, the highly sophisticated system of respiratory therapy and monitoring quickly became the most widely used ventilator across the world, capturing a 60 percent share of the international market by the end of the decade. And with the introduction of the CliniVision Respiratory Care Management Information System, a central station patient monitoring system used in hospital intensive care units, as well as several improvements to the PB 7200 series, Puritan-Bennett ended the decade with $226 million in total revenue and a net income of nearly $16 million.

While Puritan-Bennett, as a competitor in a recession-resistant industry, managed to perform well through the end of the 1980s largely on the strength of hospital equipment sales, a number of changes in the health care industry forced the company to begin focusing on its fledgling home care market. With the number of individuals suffering from chronic respiratory impairment on the rise, the appearance of new research confirming the viability of home respiratory care, and pressure from the federal government to curb hospital spending, the company had already laid the groundwork for a home care division in the early 1980s. Its line of home care products was expanded, and a network of referral sources from hospitals and pulmonary physicians was built, fostering a yearly growth of around 20 percent in the home care division in the late 1980s.

As Puritan-Bennett entered the 1990s, the changing face of the health care industry, as well as the uncertainty surrounding U.S. health care reform following the election of the Clinton administration, brought new challenges to the company. Moreover, recessionary economic conditions in Europe during the early 1990s reduced demand for the company’s hospital intensive equipment. A tragic fire at Brooklyn, New York’s Maimonides Medical Center in September 1993 called into question the safety of some Puritan-Bennett products. Although an independent investigation absolved the company four months later, the initial reports may have prompted the Food and Drug Administration (FDA) to conduct additional investigations at some of the company’s other facilities. These investigations occurred before the company had been able to complete its planned improvement programs and resulted in the issue of a consent decree in January 1994. The company was forced to cease shipments from its portable ventilator plant in Boulder, Colorado, and from its FoxS intra-arterial blood gas monitoring operation in Carlsbad, California, until Good Manufacturing Practice (GMP) and Medical Device Reporting (MDR) guidelines were met.

These factors have led Puritan-Bennett to take a number of major actions to better position the company for the future. First, the company has intensified and expanded its efforts to comply with government safety standards. Second, the company closed its Boulder facility and transferred the manufacture of portable ventilators to an International Standards Organization (ISO) certified facility in Ireland. Finally, the company has substantially cut its FoxS operation, while addressing its GMP compliance issues and offering it up for sale, after realizing that it lacked the financial resources to fully develop the high-tech blood gas monitoring system.

Having successfully rejected a hostile takeover attempt by Wal-tham’s Thermo Electron Corporation in December 1994, one that 72 percent of Puritan-Bennett stockholders had favored, the company has taken measures to prepare itself for the changing face of the future health care market in the United States and throughout the world. To that end, the company has focused much of its attention and resources to developing and improving products for the home care segment of the industry so that it will be less vulnerable to changes affecting its life-support equipment. The future performance of the company will depend largely on home oxygen therapy, which has represented three-quarters of its home care business. One of the company’s most dramatic areas of potential future growth can be found in its sleep disorder diagnosis and treatment products business. Having grown more than 75 percent in 1994, this segment stands to expand rapidly as a result of the purchase of SEFAM S.A., the leading European supplier of sleep disorder products, that same year. Perhaps the most immediate challenge to the company, though, will be to assure compliance with the ever-changing federal safety requirements.

Principal Subsidiaries: Puritan-Bennett International, Inc.; Puritan-Bennett Canada, Ltd.; Puritan Bennett International Corp.; Puritan-Bennett Aero Systems Co.; Puritan-Bennett UK Ltd.; Puritan-Bennett (HK) Ltd.; Puritan-Bennett France Sari; Me-dicomp, Inc. (50%); Puritan-Bennett Italia Sri; Puritan-Bennett Australia Pty. Ltd.; Puritan-Bennett Nederland BV; Puritan-Bennett Holdings Ireland Ltd.; Puritan-Bennett (Ireland) Ltd.; Puritan-Bennett de Mexico Sa de Cv; Puritan-Bennett Helsinki DV; Puritan-Bennett Hoyer GmbH (50%); SEFAM SA (France); Puritan-Bennett France Holdings SA; Puritan-Bennett Ireland Distribution Ltd.