<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q/A
================================================================================
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 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 No. 0-12744
SUNRISE MEDICAL INC.
(Exact name of registrant as specified in its charter)
Delaware 95-3836867
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2382 Faraday Avenue, Suite 200
Carlsbad, CA 92008
(Address of principal executive offices)
Registrant's telephone number, including area code: (619) 930-1500
================================================================================
Indicate by check mark whether 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 and (2) has been subject to such
filing requirements for the past 90 days. Yes X . No .
----- ----
================================================================================
Number of shares of common stock outstanding at May 5, 1995:
18,590,858
<PAGE>
SUNRISE MEDICAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
March 31, July 1,
1995 1994
----------- ----------
<S> <C> <C>
Assets (unaudited)
Current assets:
Cash and cash equivalents $ 4,623 $ 2,581
Receivables, net 132,900 118,729
Inventories 81,134 65,558
Other current assets 10,997 9,382
--------- ---------
Total current assets 229,654 196,250
--------- ---------
Property, plant and equipment, net 86,202 78,544
Goodwill and other intangible assets, net 233,574 202,477
Other assets, net 2,602 781
--------- ---------
Total assets $ 552,032 $ 478,052
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-term obligations $ 1,680 $ 1,789
Trade accounts payable 30,379 31,611
Accrued compensation and other expenses 53,641 54,619
Income taxes 8,788 4,893
--------- ---------
Total current liabilities 94,488 92,912
--------- ---------
Long-term debt, less current installments 156,664 118,697
Deferred income taxes 2,785 2,856
Stockholders' equity:
Preferred stock, $1 par. Authorized 5,000 shares; none issued -- --
Common stock, $1 par. Authorized 40,000 shares; 18,409 and
17,996 shares, respectively, issued and outstanding 18,409 17,996
Additional paid-in capital 182,431 175,965
Retained earnings 92,141 70,853
Cumulative foreign currency translation adjustment 5,114 (1,227)
--------- ---------
Total stockholders' equity 298,095 263,587
--------- ---------
Total liabilities and stockholders' equity $ 552,032 $ 478,052
========= =========
</TABLE>
(See accompanying notes to condensed consolidated financial statements)
2
<PAGE>
SUNRISE MEDICAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
----------------------
(unaudited)
March 31, April 1,
1995 1994
--------- --------
<S> <C> <C>
Net sales $148,641 $119,997
Cost of sales 94,229 75,679
-------- --------
Gross profit 54,412 44,318
-------- --------
Marketing, selling and administrative expenses 31,987 25,467
Research and development expenses 3,843 2,885
Corporate expenses 1,812 1,490
Amortization of goodwill and other intangibles 1,657 1,553
-------- --------
39,299 31,395
-------- --------
Corporate operating income 15,113 12,923
-------- --------
Other (expenses) income:
Interest expense (2,618) (1,570)
Interest income and other, net 974 (24)
-------- --------
(1,644) (1,594)
-------- --------
Income before taxes 13,469 11,329
Income taxes 5,536 4,647
-------- --------
Net income $ 7,933 $ 6,682
======== ========
Earnings per share $ 0.42 $ 0.36
======== ========
Weighted average number of shares outstanding 18,988 18,621
======== ========
</TABLE>
(See accompanying notes to condensed consolidated financial statements)
3
<PAGE>
SUNRISE MEDICAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Thirty-nine Weeks Ended
-----------------------
(unaudited)
March 31, April 1,
1995 1994
--------- --------
<S> <C> <C>
Net sales $436,103 $330,938
Cost of sales 280,622 210,180
-------- --------
Gross profit 155,481 120,758
-------- --------
Marketing, selling and administrative expenses 92,831 71,120
Research and development expenses 9,931 8,032
Corporate expenses 5,216 4,245
Amortization of goodwill and other intangibles 4,845 4,430
-------- --------
112,823 87,827
-------- --------
Corporate operating income 42,658 32,931
-------- --------
Other (expenses) income:
Interest expense (7,080) (4,328)
Other income and expense, net 565 (31)
-------- --------
(6,515) (4,359)
-------- --------
Income before taxes 36,143 28,572
Income taxes 14,855 11,026
-------- --------
Net income $ 21,288 $ 17,546
======== ========
Earnings per share $ 1.14 $ 0.96
======== ========
Weighted average number of shares outstanding 18,714 18,241
======== ========
</TABLE>
(See accompanying notes to condensed consolidated financial statements)
4
<PAGE>
SUNRISE MEDICAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Thirty-nine Weeks Ended
-----------------------
(unaudited)
March 31, April 1,
1995 1994
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 21,288 $ 17,546
Non-cash items 17,111 11,199
Changes in assets and liabilities, net of effect of acquisitions:
Receivables, net (10,045) (8,675)
Inventories (14,284) (10,867)
Other assets (3,533) (6,824)
Accounts payable and other liabilities (3,030) 6,947
--------- ---------
Net cash provided by operating activities 7,507 9,326
--------- ---------
Cash flows from investing activities:
Payments for purchase of property, plant and equipment (19,000) (17,552)
Net cash invested in acquisition of businesses (19,392) (105,676)
--------- ---------
Net cash used for investing activities (38,392) (123,228)
--------- ---------
Cash flows from financing activities:
Borrowings of long-term debt 148,713 141,972
Repayments of long-term debt (118,355) (66,483)
Proceeds from issuance of common stock 2,355 801
--------- ---------
Net cash provided by financing activities 32,713 76,290
--------- ---------
Effect of exchange rate changes on cash 214 5
--------- ---------
Net increase (decrease) in cash and cash equivalents 2,042 (37,607)
Cash and cash equivalents at beginning of period 2,581 40,038
--------- ---------
Cash and cash equivalents at end of period $ 4,623 $ 2,431
========= =========
</TABLE>
(See accompanying notes to condensed consolidated financial statements)
5
<PAGE>
SUNRISE MEDICAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The information contained in the consolidated financial statements and
footnotes is condensed from that which would appear in the annual
consolidated financial statements. Accordingly, the condensed consolidated
financial statements included herein should be reviewed in conjunction with
the consolidated financial statements and related notes thereto contained in
the 1994 Annual Report on Form 10-K filed by Sunrise Medical Inc. (the
"company") with the Securities and Exchange Commission. The unaudited
condensed consolidated financial statements as of March 31, 1995 and April
1, 1994, and for the thirteen week and thirty-nine week periods then ended,
include all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation. The results of operations for
the interim periods are not necessarily indicative of the results which may
be expected for the entire year.
2. Certain inventories are stated at the lower of last-in, first-out (LIFO)
cost or market value. All other inventories are stated at the lower of the
first-in, first-out (FIFO) cost or market value. Inventories consist of:
<TABLE>
<CAPTION>
(in thousands)
March 31, July 1,
1995 1994
-------- -------
<S> <C> <C>
Raw material $36,621 $26,353
Work-in-process 6,845 8,686
Finished goods 37,668 30,519
------- -------
$81,134 $65,558
======= =======
</TABLE>
Interim period inventory classification involve a degree of estimation due
to the timing of physical inventories throughout the fiscal year.
3. On September 16, 1994, the company purchased selected assets and liabilities
of Jay Medical, Ltd. ("Jay") for approximately $31 million. The total
purchase price included cash of $19 million, a subordinated note of $7.5
million and 165,789 shares of Sunrise Medical Inc. common stock valued at
$4.5 million when issued in December 1994. The cash portion of the purchase
price was provided from the company's credit facility which was amended and
restated to finance the transaction and support future business growth. The
terms of the purchase are more fully described in the Company's Form 8-K
filing dated September 16, 1994.
Unaudited pro forma combined results of the company and Jay, as if the
acquisition had occurred at the beginning of fiscal 1994, for the thirty-
nine week periods ended March 31, 1995 and April 1, 1994 are as follows (in
thousands except per share data).
<TABLE>
<CAPTION>
Thirty-nine Weeks Ended
-----------------------
March 31, April 1,
1995 1994
--------- --------
<S> <C> <C>
Sales $440,952 $346,088
Net income $ 21,343 $ 19,401
Earnings per share $ 1.14 $ 1.05
</TABLE>
6
<PAGE>
4. On April 7, 1995, subsequent to the end of the company's quarter end, the
company completed the acquisition of all the outstanding stock of
S.E.P.A.C., Corona S.A., Tecktona Bois S.A., and Tecktona Sante S.A., a
group of related French corporations, (collectively, the "Corona Group").
The total purchase price of 206 million French francs included cash of 175
million French francs and Sunrise common stock valued at 31 million French
francs. The cash portion of the purchase price was provided from the
company's existing credit facility. The Corona Group manufactures and
markets hydraulic and electric beds and other furniture for the home care,
nursing home, and hospital markets in France.
7
<PAGE>
SUNRISE MEDICAL INC. AND SUBSIDIARIES
Item 1. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
---------------------
Thirteen Weeks ended March 31, 1995 as compared to Thirteen Weeks ended
-----------------------------------------------------------------------
April 1, 1994:
- --------------
Third quarter net sales of $149 million were up 24% from $120 million
for the same period in fiscal 1994. The base business growth was 15% while
acquisitions and favorable foreign currency translation contributed six
percentage points and three percentage points, respectively, to the quarter's
sales growth.
Rehabilitation Products sales grew 33% to $76 million from prior year's
third quarter sales of $58 million. European wheelchair sales led this product
group with 45% growth. In the United States, sales of power wheelchairs and
seating products were the major contributors to this growth. Third quarter
patient aids sales increased by 6% over last year.
Recovery Products sales increased 15% to $40 million compared to $35 million
in the prior year. Revenue from therapeutic mattress products increased by 21%
over to the same period in fiscal 1994. Sales of health care beds matched last
year's third quarter performance.
Sales of Respiratory Products were up 19% to $33 million from $27 million
in the third quarter of last year. Increased sales of nebulizers and
sleep apnea products contributed to this sales growth.
Net income for the quarter increased 19% to $7.9 million as compared
to $6.7 million in the prior year. The effective tax rate in the third quarter
of 41.1% was comparable with prior year. Earnings per share for the third
quarter rose 17% to $.42 from $.36 in fiscal 1994.
Key items as a percentage of net sales were:
<TABLE>
<CAPTION>
Thirteen Weeks Ended
----------------------
March 31, April 1,
1995 1994
--------- --------
<S> <C> <C>
Gross profit 36.6% 36.9%
Corporate operating income 10.2% 10.8%
Interest expense 1.8% 1.3%
Net income 5.3% 5.6%
</TABLE>
Gross margin declined by 0.3% in the current third quarter as improvements
in product mix and overhead absorption were offset by increased materials cost
in certain product categories.
8
<PAGE>
SUNRISE MEDICAL INC. AND SUBSIDIARIES
Item 1. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Marketing, selling and administrative expenses along with research and
development expenses collectively increased at a rate of 26% for the quarter.
The two percentage point increase over the third quarter sales growth rate
reflects additional investment in new product development and higher selling
expense related to product mix. Amortization of goodwill and other intangibles
increased 7% as a result of acquisitions made during the previous three
quarters. Corporate operating income for the third quarter increased 17% over
prior year for the reasons described above.
Interest expense increased 67% over the third quarter of the prior year as a
result of increased average borrowings under the company's credit facility and
higher interest rates. The additional borrowings were used to finance the
September 16, 1994 acquisition of Jay Medical, Ltd and the February 17, 1995
acquisition of ALA/Molinari, an Italian distributor of Sunrise Medical
rehabilitation products. These borrowings were also used to fund working capital
needs driven by base business sales growth and the company's growing dealer
financing program.
9
<PAGE>
SUNRISE MEDICAL INC. AND SUBSIDIARIES
Item 1. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Results of Operations
---------------------
Thirty-nine Weeks ended March 31, 1995 as compared to Thirty-nine Weeks
-----------------------------------------------------------------------
ended April 1, 1994:
--------------------
Net sales for the first nine months of fiscal 1995 rose to $436 million
from $331 million for the same period in fiscal 1994. This 32% growth in sales
was composed of 23% internal growth, 7% acquisition growth, and a 2% foreign
currency translation benefit.
Rehabilitation Products sales during the first nine months of 1995 totaled
$219 million, 32% over the prior year. European wheelchair sales, which
increased 46% in the first nine months of the year, were the principal source of
this sales growth. Patient aid sales rose 8% during the same period.
Recovery Products sales increased 29% to $126 million for the first nine
months, up from $98 million the prior year. Therapeutic mattress product
revenues grew by 39% over last year. Sales of health care beds gained 7% from
the first nine months of fiscal year 1994.
Sales of Respiratory Products were $91 million during the first nine months
of fiscal 1995, growing 37% over the prior year. The growth occurred primarily
in the liquid oxygen and aerosol product lines.
Net income was up 21% to $21.3 million in the first nine months as compared
to $17.6 million in the same period last year. The effective tax rate of 41.1%
for the first nine months of fiscal 1995 was higher than the prior year's 38.6%
as a result of the first quarter 1994 implementation of SFAS 109, "Accounting
for Income Taxes." Earnings per share rose 19% from $.96 in the first nine
months of fiscal 1994 to $1.14 during the same period in 1995.
Key items as a percentage of net sales were:
<TABLE>
<CAPTION>
Thirty-nine Weeks Ended
---------------------------
March 31, April 1,
1995 1994
----------- ------------
<S> <C> <C>
Gross profit 35.7% 36.5%
Corporate operating income 9.8% 10.0%
Interest expense 1.6% 1.3%
Net income 4.9% 5.3%
</TABLE>
Gross margin for the first nine months of fiscal 1995 was compressed by 0.8
percentage points from the same period in 1994 due to material cost increases in
certain product categories partially offset by overhead absorption.
10
<PAGE>
SUNRISE MEDICAL INC. AND SUBSIDIARIES
Item 1. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Marketing, selling, and administrative expenses, together with research and
development expenses collectively rose 30% over the first nine months of 1994,
two percentage points below the year-to-date sales growth rate due to product
mix and expense controls. Amortization of goodwill and other intangibles
increased 9% as a result of acquisitions made during the three previous
quarters. Corporate operating income grew 30% over the prior year for the
reasons described above.
Interest expense increased by 64% for the first nine months of 1995
as compared to the same period last year. This increase reflects both higher
interest rates and higher borrowings under the company's credit facility
which were used to finance acquisitions and working capital requirements.
During the third quarter of fiscal 1995 the year-to-date interest earned
from the financing of dealer purchases was reclassified to interest income
from net sales, where it had previously been recorded. This action reflects
the company's active expansion of these financing activities and the increasing
significance of the related interest income. A similar reclassification
for fiscal year 1994 was not made as the amount involved was immaterial.
The interest earned from this dealer financing program in the first nine
months of fiscal 1995 was $1.1 million.
11
<PAGE>
SUNRISE MEDICAL INC. AND SUBSIDIARIES
Item 1. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Liquidity and Capital Resources
-------------------------------
The company's working capital grew by $31.8 million to $135.2 million in
the first nine months of 1995. An increase in current assets associated with
higher sales volume and the expansion of the company's dealer financing program
drove the growth in working capital. This growth in working capital was financed
primarily by cash generated from operations, while investing activities of $38.4
million were primarily funded through additional borrowings under the company's
credit facility and subordinated acquisition debt. Long-term debt increased
$38.0 million to $156.7 million during the first nine months of fiscal 1995.
During the first nine months of fiscal 1994, the company's working capital
decreased by $7.4 million to $84.7 million. The change in working capital was
primarily due to the decrease in cash from funding the acquisition of DeVilbiss,
partially offset by the net current assets obtained in the acquisition and an
increase in current assets resulting from higher sales volume. Cash required to
finance working capital growth and investing activities of $123.2 million was
funded through $9.3 million in cash generated from operations, together with the
use of excess cash reserves and borrowings under the company's credit facility.
During the first nine months of 1994, long-term debt grew $75.8 million to
$107.0 million.
Capital expenditures for the first nine months of fiscal 1995 were
$19.0 million as compared to $17.6 million for the same period last year.
Expenditures in both years were made throughout the company's divisions
for new product tooling, building improvements, and equipment and machinery
to improve efficiency, reduce costs, and expand capacity.
The company believes that its internally generated funds together with
its borrowings under its existing credit facility are sufficient to finance
its ongoing operating and investing activities. The company amended its
credit agreement effective August 17, 1994 primarily to increase the unsecured
commitment to $225 million from $130 million. The company's unused source
of funds under the amended credit agreement at March 31, 1995 was $83.0
million compared to $27.7 million at April 1, 1994.
The company periodically evaluates possible acquisitions as vehicles
to enhance future growth by expanding its product offering or extending
its geographical distribution. The company would expect to finance any such
potential investment through some combination of additional borrowings under
existing or expanded credit facilities, seller financing in the form of
subordinated notes, the issuance of common stock to sellers, and the public
offering of debt or equity securities.
12
<PAGE>
SUNRISE MEDICAL INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements 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.
SUNRISE MEDICAL INC.
Date: May 31, 1995 /s/ Ted N. Tarbet
---------------------------------
Ted N. Tarbet
Senior Vice President,
Chief Financial Officer
and Secretary (Principal
Financial Officer)
Date: May 31, 1995 /s/ John M. Radak
---------------------------------
John M. Radak
Vice President and Controller
(Principal Accounting Officer)
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1995 AND THE CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THIRTY-NINE WEEKS PERIOD ENDED
MARCH 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-01-1994
<PERIOD-END> MAR-31-1995
<CASH> 4,623
<SECURITIES> 0
<RECEIVABLES> 140,017
<ALLOWANCES> 7,117
<INVENTORY> 81,134
<CURRENT-ASSETS> 229,654
<PP&E> 144,968
<DEPRECIATION> 58,766
<TOTAL-ASSETS> 552,032
<CURRENT-LIABILITIES> 94,488
<BONDS> 156,664
<COMMON> 18,409
0
0
<OTHER-SE> 298,095
<TOTAL-LIABILITY-AND-EQUITY> 552,032
<SALES> 436,103
<TOTAL-REVENUES> 436,103
<CGS> 280,622
<TOTAL-COSTS> 280,622
<OTHER-EXPENSES> 112,823
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,080
<INCOME-PRETAX> 36,143
<INCOME-TAX> 14,855
<INCOME-CONTINUING> 21,288
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,288
<EPS-PRIMARY> 1.14
<EPS-DILUTED> 1.13
</TABLE>
