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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For fiscal year ended June 30, 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
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Securities registered pursuant to Section 12(b) of the Act:
TITLE OF CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- --------------------------------------------------------------------------------
Common Stock, par value $1.00 New York Stock Exchange
Common Stock Purchase Rights New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: None
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]
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 91 days. YES [X] NO [_]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant: $422,665,313 as of September 15, 1995
On September 15, 1995 the registrant had 18,823,699 outstanding shares of $1
par value common stock.
DOCUMENTS INCORPORATED BY REFERENCE
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DOCUMENTS FORM 10-K REFERENCES
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Portions of the company's Definitive Proxy Part III, Items 10-13 (Page 48)
Statement for its Annual Meeting of
Stockholders to be held on November 7, 1995.
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PART I
ITEM 1. BUSINESS
Sunrise Medical Inc. ("Sunrise" or the "company") designs, manufactures and
markets medical products used in institutional and home care settings which
address the recovery, rehabilitation and respiratory needs of the patient.
Products include custom manual and electric wheelchairs, wheelchair seating
systems, ambulatory and bath safety aids, home respiratory devices, patient-room
beds and furnishings, and therapeutic mattresses and pressure management systems
for healthcare and consumer markets. The company manufactures its products in
the United States, the United Kingdom, Germany, France and Spain and distributes
them through company-owned operations in those countries as well as Canada,
Norway, Sweden, Italy, Switzerland, Australia, Poland and the Netherlands and
through distributors in more than 80 other countries.
Sunrise Medical's corporate mission is to improve people's lives by creating
innovative, high quality products. The company's products increase mobility and
independence, speed rehabilitation and recovery, facilitate participation in
recreational activities by the disabled and enhance patient care, comfort and
respiratory capabilities. They are designed to meet the special needs of five
groups of people: the elderly, the disabled, the recovering patient, the
respiratory sufferer and the health-conscious consumer.
Sunrise commenced operations in May 1983 and completed its initial public
offering in November 1983. The company was created to take advantage of changes
affecting the healthcare industry in the United States, including a rapid growth
in the elderly segment of the United States population and the introduction in
1983 of new government healthcare reimbursement policies. The new reimbursement
policies replaced a cost-plus profit structure with set fixed payments for
services rendered by hospitals to Medicare patients. This change in policy led
to dramatic changes in the healthcare industry which included a decline in
hospital admissions, shorter hospital stays, the emergence of alternate site
treatment facilities and an increase in care at home and in nursing homes.
The company's long-term strategic objective, which it calls its "strategic
intent," is to become the global market leader in recovery, rehabilitation and
home respiratory products by the year 2000. Sunrise is already one of the
largest firms in its industry internationally and is the leader in most of its
U.S. product markets as measured by industry sales. Sunrise has identified five
attractive product markets within the recovery, rehabilitation and home
respiratory markets which it considers its core businesses: custom wheelchairs,
patient aids, home respiratory devices, pressure management products and
healthcare beds. In each of these markets, and with any other core businesses
that may be added in the future, the company aims to achieve global leadership
over time through the pursuit of the following common strategies:
1. Product Leadership through Specialization - Maintain and extend product
leadership in the primary domestic market of each core business by offering
innovative, high quality products which address low, middle and higher price
niches. Concentrate product marketing efforts on targeted customer bases
through dedicated salesforces, customer service specialists, expanded
distribution capabilities and convenient financing plans that together add up
to superior customer service.
2. Superior Technology - Increase steadily the commitment to research and
development, applying the latest available technologies to solve patient
problems associated with post-surgical care.
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ITEM 1. BUSINESS (CONTINUED)
3. Pursuit of Excellence - Aggressively develop a culture at Sunrise dedicated
to decentralized management, empowerment of Associates (employees) and
continuous improvement in all areas with particular emphasis on total quality
management and world class manufacturing methodologies.
4. Global Expansion - Extend domestic market leadership internationally by
leveraging competitive advantages in product technology, financial capacity
and management systems to capitalize on worldwide macro trends in market
demographics, patient care and consolidation of manufacturing industries.
5. Strategic Acquisitions - Enhance core businesses by acquiring proprietary
technologies and product lines which yield immediate synergy or help enter
fast growing market niches. Extend global reach by purchase of manufacturing
or distribution operations in other countries.
DISCUSSION OF MARKET GROUPS
REHABILITATION PRODUCTS
-----------------------
The Rehabilitation Products Group includes custom wheelchairs and patient aids
designed to address the equipment needs of the elderly and the disabled in an
outpatient setting. The two core product lines within the company's
Rehabilitation Products Group are custom wheelchairs, which are individually
manufactured to meet the specifications of each end-user, and patient aids,
which are standardized medical products designed to assist in walking, bathing,
toileting, patient lifting and patient mobility. These products are sold
through dedicated salesforces in each division, who call on a network of home
medical equipment ("HME") providers, rehabilitation technology suppliers, and
drug wholesalers. International sales are also generated through distributors
and dealers in numerous countries, in addition to direct sales to consumers in
the U.K. Rehabilitation Products sales accounted for 51% of company sales in
1995.
The company believes its Quickie line of custom ultralight manual wheelchairs is
the U.S. and global market leader in this category, enjoying worldwide name
recognition among both industry professionals and disabled end-users. Jay
Medical is believed to be the world leader in specialty wheelchair cushions and
modular positioning products. The company's Guardian brand of ambulatory aids
and crutches is believed to hold a leadership position in the domestic home care
and hospital markets. Sunrise Medical Ltd. (U.K.), Sopur (Germany), and Uribarri
(Spain) are also believed to hold leadership positions in their primary product
markets in each of their home countries.
Quickie Designs continued to experience significant growth in sales of power
wheelchairs in 1995, while strengthening its position in worldwide sales of
custom ultralight wheelchairs. The success of the Quickie P200, now the
company's leading power wheelchair, was further enhanced with the introduction
of the innovative Quickie P210, which provides a power reclining seating system.
Quickie continues to provide products that improve the user's comfort and
functionality. The new Quickie Revolution, a high performance custom wheelchair
designed to fold horizontally and store easily in the overhead compartment of an
airplane, has been very well received. Designed for the active wheelchair user,
the Quickie Revolution allows its user greater independence and flexibility in
lifestyle.
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ITEM 1. BUSINESS (CONTINUED)
On September 16, 1994 Sunrise acquired the wheelchair seating business of Jay
Medical Ltd. ("Jay"). Jay manufactures and markets wheelchair cushions and
positioning systems at its Boulder, Colorado facility. Jay cushions and
positioning pads are designed to fit all major brands of wheelchairs. They are
filled with Jayflow (R), a patented fluid material designed and manufactured by
Jay. Its products provide flexible, cost effective solutions to the seating and
postural problems of geriatric, pediatric and adult wheelchair users and are
sold globally through a network of exclusive distributors, including Sunrise
European distribution divisions, and through rehabilitation equipment providers
within the United States. Its marketing channels and referral sources are the
same as those used by Sunrise Medical's custom wheelchair business. Jay
successfully introduced several innovative products this year. The new J2 back
support, designed to address the comfort and posture control issues of the
wheelchair user, is now one of Jay's leading products. Jay also extended its
seating product line in 1995 by offering the modestly priced Jay Basic Cushion
and the recently introduced Jay Duo, a contoured solid seat with an integrated
cushion aimed at the high end of this market.
Sunrise Medical Ltd. is the largest producer of rehabilitation equipment in the
United Kingdom, manufacturing and marketing four major product lines: custom
manual wheelchairs, power wheelchairs, electric scooters, and home stairlifts.
Recently, Sunrise Medical Ltd. reported its ninth consecutive year of record
sales and profits. This growth has been fueled by increasing exports and product
innovation. A recipient of the Queen's Award for Export in 1994, Sunrise
Medical Ltd. exported to over 40 countries. The success of the PowerTec F50, a
high-end power wheelchair enhanced with an electric powered tilting seat and
reclining back, demonstrates the value of innovative products. The addition of
a low cost stairlift, the ES model, broadened the Minivator product line and is
expected to contribute to revenue growth in the future. A synergistic
relationship with Quickie has contributed to this stream of new products, such
as the PowerTec F15, a power add-on kit built around Quickie's Breezy frame.
Sopur, the company's German manufacturer of custom lightweight wheelchairs, has
for the last several years continued to improve its sales and operating margin
through the extension of its product line and the reduction of manufacturing
costs and delivery time. Sopur now offers a full spectrum of products,
including the Classic, a lightweight low end model; the Easy series of mid-price
lightweight wheelchairs; and a high end titanium sports chair, the Allround
Titan. In 1995 Sopur added the Starlight and the Allround Kid to its array of
products. During the year Sopur reorganized its facilities, improving capacity
and production times to new record levels, which in turn allowed for significant
reductions in delivery times. The improvement in manufacturing processes was
further evidenced by Sopur's ISO 9001 certification in 1995.
Talleres Uribarri, the company's Spanish manufacturer of standard wheelchairs
and patient aids, provides Sunrise with a low-cost European manufacturing base
for standard wheelchairs, helpful in exporting Spanish-manufactured products to
other European countries through other Sunrise European divisions as well as
independent distributors. In 1995 Uribarri more than doubled the number of
countries to which it exports its products. Uribarri has also used its excellent
Spanish sales coverage and dealer network to increase market penetration for
other Sunrise products. Uribarri has expanded its product lines this year
introducing the Sunpower, a low priced power wheelchair, and the Nido, a manual
chair for children with cerebral palsy. These steps have allowed Uribarri to
achieve strong sales growth, solidifying its leadership in the Spanish
rehabilitation market.
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1. BUSINESS (CONTINUED)
Guardian Products, the leader in the U.S. patient aids market, introduced a new
line of consumer retail products under the brand name CareMate. The CareMate
line is expected to open new channels of distribution for Guardian, including
drug stores, home centers, department stores and specialty retailers. The
professional line of Guardian brand products will continue to be marketed
through HME providers, which are able to offer the service level required for
home medical care patients. Guardian introduced several new and innovative
products this year, including the Lift N' Bathe, a unique in-room patient
lifting and bathing system, the Anthros product line of PVC tube-constructed
patient aids, and a number of attachments and enhancements for its Partner line
of patient lifters. During the year, Guardian reduced overhead costs by
successfully closing one factory and reorganizing its production operations by
product line. The production of high volume ambulatory and bath safety products
was consolidated at Guardian's facility in Simi Valley, California, while
patient-lifting manufacturing was centralized in Oshkosh, Wisconsin.
RECOVERY PRODUCTS
-----------------
The Recovery Products Group manufactures products which foster ease of care for
recovering patients in institutional settings such as hospitals and nursing
homes. This group includes pressure management products, such as air therapy
systems and foam mattress overlays, and lines of healthcare beds and nursing
home furniture. Domestic salesforces call directly on institutions in addition
to medical-surgical distributors and HME providers. Other distribution channels
include sales to mass merchandisers and department store chains in the U.S. and
Canada, rentals to institutional users of pressure management devices, and
foreign sales of healthcare products through the company's international
distribution network. Sales of recovery products represented 29% of total
company sales in 1995.
Bio Clinic develops cost-effective solutions for the prevention and treatment of
pressure sores - skin wounds which can afflict immobilized patients - offering a
broad line of modalities to address patient needs at each level of severity. Bio
Clinic's Eggcrate(R) line is widely recognized as the U.S. healthcare market
leader in disposable foam pressure reduction mattress overlays. In 1993 Bio
Clinic established a nationwide network to sell, rent and service air therapy
systems and related products in institutional settings. These systems include
the BioMedx, the Orthoderm line of cost effective pressure management products
and the newly introduced Bio Therapy Plus Mattress System. Bio Clinic reaches
the home care market by forming relationships with HME providers who rent or buy
products from Bio Clinic and deliver them into the home. Bio Clinic also has
important relationships with major national distributors such as Baxter, General
Medical and Owens & Minor, who offer Bio Clinic products to their customers.
Healthcare institutions have been increasing their use of reusable air therapy
products and other substitutes in preference to disposable foam products. In
response to this market change, Bio Clinic has been using its foam manufacturing
core competence to address the consumer market with a line of consumer mattress
pads and pillows for sale through retailers such as K-Mart, Wal-Mart and J.C.
Penney. In fiscal 1993 the company acquired American Decorative Inc. and its
subsidiary Comfort Sleeper. Comfort Sleeper was integrated into Bio Clinic's
consumer foam business in 1994. The unified consumer business, later renamed
Comfort Clinic, is believed to be the U.S. market leader in the therapeutic
sleep products market segment. Beginning in fiscal 1996, Comfort Clinic will be
operated as a separate Sunrise Medical operating division.
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ITEM 1. BUSINESS (CONTINUED)
The Joerns line of healthcare beds and nursing home furniture is believed to
be the domestic leader in sales to the nursing home market. The nursing home
furniture market has averaged 10% annual growth over the past decade but has
been characterized by cyclical swings. In 1995 nursing home construction was
rather flat, slowing sales growth at Joerns. Order levels in the last quarter
rose significantly, indicating a more positive market in 1996. The long-term
outlook for this market remains favorable due to demographic trends and the
greater than 90% average occupancy rate presently being experienced by nursing
homes. SunTec, a sales division established by Joerns in fiscal 1993 to market
its home care bed line to the HME industry, continued favorable growth trends
in 1995.
In the last several years, Joerns has moved to the state-of-the-art, European 32
millimeter system design for efficient manufacturing and modular assembly of its
case good product lines. The Presidential, Windsor, Classics and Americana
collections are all new lines of case goods introduced this year. All
incorporated a greater focus on style and an expanded array of finish and
hardware options. The Vista bed, a revolutionary home care bed that utilizes two
motors to accomplish the work of three, was introduced this year to address the
recent change in Medicare policy that stopped reimbursement for three-motor,
full electric beds.
On April 7, 1995 Sunrise Medical acquired a group of related French companies,
collectively referred to as the Corona Group ("Corona"). Corona, founded in
1954, is a leading manufacturer of healthcare beds with annual revenues of
approximately $37 million. Corona is believed to be the French market leader in
home care beds and the second largest manufacturer of hospital beds and nursing
home beds and furniture.
Corona operates two modern manufacturing facilities in Tours, France--one
produces beds and the other nursing home furnishings. Corona markets its
products to French nursing homes and hospitals through its own direct
salesforce and sells to home care dealers through a wholly-owned distribution
company. Sunrise intends to use its developed European distribution network
to introduce Corona's products throughout Europe.
RESPIRATORY PRODUCTS
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In the beginning of fiscal 1994, Sunrise Medical entered the home respiratory
segment of patient care with the acquisition of Homecare Holdings, Inc., the
parent company of DeVilbiss Health Care, Inc. ("DeVilbiss"). DeVilbiss
manufactures products in three categories: aerosols, oxygen and sleep therapy.
Aerosols, made up primarily of compressor nebulizers, convert liquid medicine
into airborne particles to treat breathing disorders such as asthma and cystic
fibrosis. Oxygen concentrators enrich normal room air up to 93% purity for
patients suffering from chronic obstructive lung diseases such as emphysema and
bronchitis. In January 1994 DeVilbiss extended its oxygen products line with
the acquisition of a line of portable liquid systems and proprietary demand
oxygen delivery devices. Sleep products help sufferers of obstructive sleep
apnea by supplying continuous positive airway pressure ("CPAP") while they are
sleeping.
Home respiratory products accounted for 20% of total company sales in fiscal
1995. DeVilbiss has manufacturing locations in both the U.S. and the U.K. and
distribution operations in France and Germany, generating roughly 35%
of its sales outside the U.S. Domestically, their nationwide salesforce
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ITEM 1. BUSINESS (CONTINUED)
calls on many of the same HME providers as do other Sunrise HME salesforces.
Management believes DeVilbiss is the U.S. market leader in nebulizers and the
world leader in concentrators. New products such as the Walkabout, with
PulseDose-demand oxygen delivery, and the Horizon, a CPAP device for adult
obstructive sleep apnea sufferers, are expected to enhance the future
respiratory products sales growth.
SUNMED SERVICE
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A new logistics division, called SunMed Service, was created in 1995 to
consolidate the customer service, order entry, distribution and credit functions
for standard products sold to the U.S. HME market from all Sunrise divisions.
SunMed Service ("SMS") is expected to be operational early in calendar 1996 and
will be headquartered in the Los Angeles area. SMS will have order processing
centers in California and Pennsylvania and a network of regional distribution
centers located throughout the United States.
Customers will be able to purchase standard products across all Sunrise
divisions by placing a single order to SMS, with products being shipped the next
day from one of the regional distribution centers. Customized products, such as
most Quickie wheelchairs and many of Jay's cushion products, will continue to be
ordered directly and shipped from those factories.
GEOGRAPHICAL SEGMENTS
Financial information concerning the company's two geographical segments, North
America and Europe, is included under "Geographic Segment Information" in the
Notes to the Consolidated Financial Statements.
COMPETITION
The company encounters significant competition domestically from a number of
manufacturers in each of its product lines, and from foreign sources for some
products. The company competes primarily on the basis of product features and
performance, customer service and delivery, competitive prices and the strength
of its salesforces, company-owned distribution operations and independent
dealer networks.
MANUFACTURING
The company's manufacturing processes include fabrication, assembly, testing and
quality assurance. Certain components used in the company's products, such as
small motors and electronic controls, are manufactured by third parties.
Although the company purchases most of its raw materials, components and
supplies from a number of different vendors, it does procure a few components
and materials on a single-source basis. If one of these single-source vendors
failed to deliver components as planned, shipments of certain of the company's
products could be delayed.
During the past few years, prices paid by the company for certain raw materials,
such as aluminum, foam and wood, have fluctuated. When prices have increased
the company has frequently not passed along the full effect of such increases to
its customers, preferring instead to maintain or enhance, if possible, its
market positions. However, in 1995 prices were raised in selected markets to
partially offset increases in certain raw material costs.
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ITEM 1. BUSINESS (CONTINUED)
The company has utilized a variety of operational tools such as "just in time"
manufacturing, total quality management, target costing and its Associate
suggestion system to reduce product costs, increase quality, shorten delivery
cycles and improve asset turnover. These complementary techniques are all part
of the company's Pursuit of Excellence program.
RESEARCH AND PRODUCT DEVELOPMENT
The company conducts research and development at each of its manufacturing
divisions. For the year ended June 30, 1995, the company expended $13.9 million
on research and development as compared to $11.0 million for the prior year, a
26% increase. Each operating unit has established objectives for introducing new
products in fiscal 1996, and the company tracks progress against those
objectives on a regular basis. As a result of its effort to introduce innovative
new products across its product lines, the company has steadily increased
research and development expenditures and plans to continue to do so for the
foreseeable future.
PATENTS
The company currently holds patents associated with certain existing products
and has filed applications for additional patents covering certain of its newer
products. Although patents sometimes can provide a meaningful competitive
advantage in a particular product market, overall management does not consider
the ownership of patents essential to its operation. The company relies on
product quality and features, strong marketing and distribution networks, and
continuing new product introductions, in addition to its patents, to protect and
improve its market positions.
GOVERNMENTAL REGULATION
The healthcare industry is affected by extensive government regulation and
funding at the federal and state levels.
MEDICARE AND MEDICAID. Medicare is a federally funded health insurance
program administered by private insurance companies providing health
insurance coverage for persons 65 or older and certain disabled persons.
Medicaid is a federally and state funded health insurance program
administered by state governments that provides reimbursement for healthcare
related expenses for certain financially or medically needy persons
regardless of age. These programs provide reimbursement for rentals and
sales of medical equipment and supplies. Medicare generally pays 80% of the
allowable reimbursement rate, while Medicaid generally pays 100%.
The company estimates that about 22% of its fiscal 1995 sales were ultimately
dependent for payment upon these U.S. government programs. The company is
not a provider under Medicare or Medicaid, but its products are sold to HME
providers, nursing homes and hospitals which are providers under these
programs and do depend upon Medicare and/or Medicaid reimbursement for a
portion of their revenue. Changes in Medicare/Medicaid regulations can impact
the company's revenues and collections indirectly by reducing the
reimbursement rate received by HME providers and thus making it less
profitable for them to sell or rent products to the end-user. This, in turn,
can put downward pressure on prices charged for the company's products sold
through this channel. Medicare cutbacks are expected to impose just such
pricing pressures in fiscal 1996, particularly in the category of respiratory
products. Management believes that intensified healthcare cost containment
efforts through managed care also favor lower cost alternatives such as home
healthcare and related products, as has been the case historically. The
company
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ITEM 1. BUSINESS (CONTINUED)
believes it is well positioned to provide appropriate products at whatever
price points the market demands and has made special efforts in recent years
to allocate more of its new product engineering dollars to lower cost, more
generic products favored by managed care and Medicare/Medicaid programs.
FDA REGULATION. Medical equipment manufactured by the company is subject to
regulation by the U.S. Food and Drug Administration ("FDA"). All medical
devices must be the subject of device listings filed with the FDA, and
medical device manufacturers must be registered. Certain products require
clearance by the FDA prior to marketing and distribution in the U.S. Delays
in receiving such approval can adversely affect the company's ability to
introduce new products on a timely basis and impact the company's results of
operations. During the last two years, such delays have slowed up new product
introductions and in a number of cases have led to their initial marketing
overseas in advance of the U.S.
EMPLOYEES (ASSOCIATES)
The company employed 4,054 full-time Associates worldwide as of June 30, 1995.
404 Associates in the United States are covered under two collective bargaining
agreements which expire on May 23, 1997 and June 29, 1998, respectively. In
Europe, 119 Associates in the United Kingdom and 134 in Germany are covered by
informal union arrangements. The company has not experienced a strike, work
stoppage or labor disturbance during its twelve year history. The company
believes that its labor relations are generally good.
BACKLOG
The company's backlog of firm orders at June 30, 1995 was approximately $35.0
million, compared to $32.8 million for the year ended July 1, 1994. Of this
amount in 1995, $20 million (compared to $10 million for the prior year period)
represented orders for patient room beds and furnishings, the one portion of the
company's business for which backlog is believed to be a meaningful factor
because of the longer order lead times in this industry. All of these orders
are expected to be filled in the first half of fiscal 1996. Generally, the
company manufactures the balance of its products to its forecast of near term
demand, shipping immediately from stock, or else produces based on actual orders
received and ships within a short period thereafter. As a result, the company
does not have a substantial backlog for these products and does not believe that
backlog at any particular time is generally indicative of future sales levels.
WORKING CAPITAL REQUIREMENTS
The company does not maintain inventory of its products for a significant period
of time (See "Backlog"). Most of the company's products are manufactured in
connection with specific orders which are shipped in less than 30 days, and in
many cases less than 72 hours, from receipt of the order. Patient room bed and
furnishing products also are manufactured in connection with specific orders,
but may take from one to three months until all product is ready to ship. The
company maintains a larger stock of those component parts which require longer
lead times to obtain from suppliers to minimize the risk of extending time
periods to fulfill product orders. The company sells products subject to
customary warranties, and occasionally accepts products for replacement upon
customer requests. However, returns for credit or refund have not been a
material aspect of the company's business. In addition, most of the company's
sales are made on standard terms requiring payment by the customer within 30
days of delivery. Some sales are made on extended terms on a selective basis.
The company offered extended terms in 1994 to certain of its customers who were
impacted by the delays resulting from the DMERC (Durable Medical Equipment
Regional Carriers) Medicare reimbursement transition, causing an increase in
accounts receivable at July 1, 1994.
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ITEM 1. BUSINESS (CONTINUED)
Although, the reimbursement process improved during 1995, the use of extended
terms and other forms of seller financing as a competitive feature has continued
to impact accounts receivable levels during fiscal 1995.
FOREIGN OPERATIONS
The company has foreign subsidiaries with manufacturing operations in the United
Kingdom, France, Germany and Spain. A total of twelve additional subsidiaries,
located in the United Kingdom, Germany (2), Canada, France (2), Norway, Sweden,
Italy, Switzerland, Australia and the Netherlands, are involved in distribution
activities. All of the company's facilities are located in industrially
developed areas where qualified labor and material supply have been readily
available at economic rates. See "International Operations" in Item 7
(Management's Discussion and Analysis of Financial Condition and Results of
Operations) for additional information and discussion about foreign operations
and foreign currency risk management.
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ITEM 2. PROPERTIES
The company's worldwide corporate headquarters office is located in Carlsbad,
California, and comprises approximately 20,600 square feet of leased space,
that Sunrise occupies under a lease expiring in 2004. In addition, the
company conducts its U.S. operations from 45 leased facilities (totaling over 1
million square feet) under leases with expiration dates ranging from 1995
through 2008, together with three company owned facilities totaling
approximately 425,000 square feet.
For its international operations, Sunrise leases 24 facilities in Europe and
Australia (totaling approximately 250,000 square feet) under leases with
expiration dates ranging from 1995 through 2017, together with five company
owned facilities in Europe totaling approximately 325,000 square feet.
The company's facilities are used primarily for manufacturing, warehousing and
administration. Sunrise has options to renew a number of its leases as well
as purchase options on certain leased facilities. Management believes that its
facilities are adequate for the company's current needs.
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ITEM 3. LEGAL PROCEEDINGS
On August 18, 1995, a lawsuit was filed in the Colorado District Court of
Boulder County, Colorado entitled Alden Laboratories, Inc. v. Eric C. Jay,
Pressure Relief Technologies, Inc., d/b/a Jay Fluid Mattress, Sunrise Medical
Inc., Quickie Designs Inc. and Jay Medical, Inc. The plaintiff alleges that the
activities of the defendants during and prior to the acquisition (the
"Acquisition") by the Company of the seating business of Pressure Relief
Technologies, Inc. (formerly Jay Medical, Ltd., the "Seller"), constituted a
breach of contract, and other wrongful conduct by the defendants. The plaintiff
seeks damages in an unspecified amount, injunctive relief and attorneys' fees
and costs. The Company believes that it has substantial defenses to each of the
claims asserted against it and its subsidiaries, and intends to defend
vigorously against those claims. The Acquisition agreement obligates the Seller
to indemnify the Company against certain of the costs, expenses and losses it
may incur as a consequence of the suit.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of fiscal 1995 to a vote of
the company's security holders.
EXECUTIVE OFFICERS OF THE COMPANY
Pursuant to General Instruction G(3) of Form 10-K, the following information is
included as an unnumbered Item in Part I of this Report.
The following is a list of names and ages of all of the executive officers
(within the meaning of Item 401 of Regulation S-K) of the company indicating all
positions and offices with the company held by each such person and each such
person's principal occupations or employment during the past five years.
Executive officers serve at the discretion of the Board of Directors. No person
other than those listed below has been chosen to become an executive officer of
the company.
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Name Age Position
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Richard H. Chandler 52 Chairman of the board and CEO
Larry C. Buckelew 42 President and chief operating officer
C. Leslie de Ruiter 36 Managing director - Sunrise Medical Benelux
Raymond W. Dyer 49 President - DeVilbiss Health Care Inc.
John R. Frymark 40 President - Guardian Products Inc.
Richard H. Kollisch 47 President - Sopur GmbH
Gary Limon 42 President - Bio Clinic Corporation
Dennis J. McCarthy 54 President - Joerns Healthcare Inc.
Brad Nutter 43 Senior vice president, corporate marketing
Thomas H. O'Donnell 52 President - Quickie Designs Inc.
Barrie Payne 58 Managing director - Sunrise Medical Ltd.
Greg Szabo 41 President - Comfort Clinic
Ted N. Tarbet 42 Senior vice president, CFO
Roberta C. Baade, Ph.D. 51 Vice president of human resources
Steven A. Jaye 39 Vice president, general counsel and corporate secretary
John M. Radak 34 Vice president and controller
Sam Sinasohn 34 Vice president of taxes
</TABLE>
12
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(CONTINUED)
Richard H. Chandler was elected chairman of the Board of Directors and chief
executive officer of the company in July 1993. Previously, Mr. Chandler was
chairman of the Board of Directors and president from the company's inception in
January 1983 until July 1993. From 1982 to 1983, he was President of the
Richard H. Chandler Company, a management consulting firm, during which period
he planned the formation of the company. From 1977 to 1982, he was president
and chief executive officer of Abbey Medical, Inc., with the exception of six
months in 1979 when he was group vice president of Sara Lee Corporation. Mr.
Chandler participated in the leveraged buy-out of Abbey Medical from Sara Lee
Corporation in June 1979 and arranged for its sale to American Hospital Supply
Corporation in April 1981.
Larry C. Buckelew has been a director, chief operating officer and president of
the company since August 1994, and was president of the company from July 1993
until August 1994. Previously, Mr. Buckelew was president of Bio Clinic
Corporation, a company subsidiary, from November 1986 until July 1993. From
1984 to 1986, Mr. Buckelew was vice president, marketing and business
development for the American Scientific Products Division of American Hospital
Supply Corporation, a distributor of laboratory equipment and supplies. He was
vice president, area manager for American Scientific Products from 1983 to 1984,
and previously held several positions of increasing responsibility with American
Hospital's Pharmaseal Division, a manufacturer of disposable medical devices.
C. Leslie de Ruiter has served as managing director of Sunrise Medical Benelux
since October 1992. Previously, Mr. de Ruiter held the positions of business
unit manager and marketing manager for the OPG Group, a Dutch healthcare company
that manufactures, imports and sells pharmaceuticals and medical supplies, from
1989 through 1992. Prior to that, Mr. de Ruiter held a variety of sales and
marketing positions at Eli Lilly International Benelux, a pharmaceutical
company.
Raymond W. Dyer was elected president of DeVilbiss Health Care Inc. in June
1994. From 1992 to 1994, Mr. Dyer was president of Renal Products Group of
National Medical Care, Inc. a division of W.R. Grace & Company that manufactures
kidney dialysis equipment and supplies. Prior to joining W.R. Grace, he held a
variety of positions with Cobe Laboratories, a manufacturer of blood oxigenators
and dialysis equipment and supplies, including corporate vice president for
Europe, Africa and Middle East operations and division president.
John R. Frymark was elected president of Guardian Products Inc. in June 1994.
Previously, Mr. Frymark served as vice president of sales and vice president of
marketing at Guardian from January 1989 until June 1994 and from July 1986 until
January 1989, respectively. Prior to joining Guardian, he was the director of
marketing for the Pharmaseal Division of Baxter Healthcare Corp, a manufacturer
of disposable medical devices.
Richard H. Kollisch was elected president of Sopur GmbH in June 1992.
Previously, Mr. Kollisch was vice president and general manager during 1990 and
1991 for a division of The Stanley Works, a hand tool manufacturer. From 1979
to 1990 he served as president and chief executive of an American subsidiary of
J.F. Behrens AG, a German manufacturer of pneumatic tools and industrial
fasteners.
Gary Limon was elected president of Bio Clinic Corporation in July 1995 after
serving as vice president and general manager of the Air Systems Division for
the previous year. Mr. Limon served as vice president and general manager of
Bio Clinic's Consumer Division since its inception in 1988 until 1994. He was
vice president of marketing for the Bio Clinic Healthcare Division from 1986 to
1988, and held several other sales management positions of increasing
responsibility with Bio Clinic since 1979.
Dennis J. McCarthy was elected president of Joerns Healthcare Inc. in September
1990. From 1986 to 1989, Mr. McCarthy was president of the Document Management
Products Company (DMPC), a subsidiary of Bell & Howell Company that manufactures
and markets office products and systems, where he also served as a corporate
vice president. From 1981 to 1986, he was president of the Computer Output
Microfilm Division of Bell & Howell.
13
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(CONTINUED)
Brad Nutter was elected senior vice president of corporate marketing in July
1995. Previously, Mr. Nutter had served as president of Bio Clinic Corporation
since July 1993. From 1990 to 1993, Mr. Nutter was president of Hospitex, a
Baxter International division that markets textiles, apparel, pressure relief
and incontinent care products. Mr. Nutter served as Baxter's vice president,
corporate sales for Multi-Hospital Systems, a division of Baxter International
that manufactures and distributes medical products, from 1985 to 1990. Prior to
joining Baxter, he held a variety of positions with American Hospital Supply
Corporation including vice president, national accounts and Midwest area vice
president.
Thomas H. O'Donnell was executive vice president - operations of the company
from January 1987 until August 1989, when he was elected president of Quickie
Designs Inc. In 1986 Mr. O'Donnell was president and chief operating officer of
General Computer Company, a manufacturer and distributor of personal computer
peripherals. From 1984 to 1985, he was chief executive officer of Connecting
Point of America, Inc., a chain of computer retail stores. From 1967 to 1984,
he was with IBM Corporation in a variety of management positions. Prior to
leaving IBM, he was vice president - product management for the Entry Systems
Division of IBM.
Barrie Payne has served as managing director of Sunrise Medical Ltd. since June
1983. Previously, Mr. Payne was president and general manager of A-BEC Mobility
Inc. since 1972 and is a former owner of A-BEC, a distributor of electric
wheelchairs and other power mobility products.
Greg Szabo was elected president of Comfort Clinic in July 1995. Mr. Szabo
served as vice president and general manager of Bio Clinic's Healthcare Foam
Division since 1994. He was vice president of healthcare marketing at Bio
Clinic from 1991 to 1994. Prior to joining Bio Clinic, Mr. Szabo was the
director of sales and marketing for Retec and Gaymar from 1989 to 1991.
Ted N. Tarbet was elected senior vice president and chief financial officer
in August 1993. Previously, Mr. Tarbet served as vice president, chief financial
officer and secretary from June 1989 until August 1993. He served as corporate
controller from 1986 to 1988, when he was elected vice president and controller
of the company. From 1981 to 1986, Mr. Tarbet served as controller and then as
vice president and chief financial officer of Anadex Inc., a manufacturer of
personal computer products. Mr. Tarbet is a certified public accountant.
Roberta C. Baade, Ph.D., was elected vice president of human resources in June
1994. Previously, Dr. Baade was director of human resources for the Space
Systems Division of General Dynamics Corporation since 1991. From 1983 to 1991,
she held a variety of positions with General Dynamics Corporation including
corporate director of human resource development. Dr. Baade holds a Ph.D. in
organizational communication.
Steven A. Jaye was elected vice president/general counsel and corporate
secretary of the company in August 1995. From 1991 through 1995, Mr. Jaye
served as the vice president - legal for Magma Power Company - a publicly
traded, international, independent power producer. From 1984 through 1991 he
served as a business attorney with Latham & Watkins, handling a broad range
of finance and acquisition transactions, as well as general business matters for
healthcare and technology-based companies worldwide. Mr. Jaye graduated in 1979
with an engineering degree from the University of California at San Diego, and
worked for two years as a project engineer before attending the University of
Southern California, where he earned a Juris Doctor degree in 1984.
14
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(CONTINUED)
John M. Radak was elected vice president and controller in January 1995.
Previously, Mr. Radak was vice president, finance for the respiratory care
subsidiary of Bird Medical Technologies Inc., a medical device manufacturer.
Prior to joining Bird, he held various financial management positions of
increasing responsibility with Calcomp Inc. a Lockheed subsidiary which
manufactures printers and plotters for computer graphics applications. From 1982
to 1985 Mr. Radak was an accountant for Deloitte and Touche LLP. Mr. Radak is a
certified public accountant.
Sam Sinasohn was elected vice president of taxes in March 1994. Previously, Mr.
Sinasohn served as director of taxes and assistant secretary from September 1988
to March of 1994 and as tax manager from July 1985 to September 1988. From 1982
to 1985, Mr. Sinasohn was a tax specialist for KPMG Peat Marwick LLP. Mr.
Sinasohn is a certified public accountant.
15
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The company's common stock, $1 par value trades on the New York Stock Exchange
under the symbol "SMD." The highest and lowest daily closing price for each
quarterly period during the last two fiscal years was as follows:
<TABLE>
<CAPTION>
1995 1994
--------------- ------------------
High Low High Low
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter 26 1/2 20 24 7/8 21 3/8
Second Quarter 29 1/4 24 30 1/2 24 1/4
Third Quarter 36 3/4 26 3/4 32 3/4 28 3/4
Fourth Quarter 36 3/8 27 3/8 30 1/2 21 1/4
Year 36 3/4 20 32 3/4 21 1/4
- -----------------------------------------------------------------------
</TABLE>
The number of holders of record of Sunrise common stock as of September 14, 1995
was 682. The company estimates it has approximately 10,600 beneficial holders
of its common stock.
The company has not paid cash dividends to holders of its common stock and has
no plans to do so in the foreseeable future. The company presently intends to
retain all earnings to fund its operations and future growth.
16
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Years Ended
-------------------------------------------------------
June 30, July 1, July 2, July 3, June 28,
1995 1994 1993 1992/(3)/ 1991
-------- -------- --------- ---------- --------
<S> <C> <C> <C> <C> <C>
Selected consolidated results of operations data:
Net sales $603,978 $467,906 $319,196 $ 243,920 $203,825
Gross profit 217,656 170,825 115,317 86,218 69,909
Marketing, selling and administrative expenses 128,441 100,238 67,269 51,796 43,772
Research and development expenses 13,937 11,029 7,388 5,846 4,212
Corporate expenses 7,360 5,444 4,439 3,701 3,125
Amortization of intangibles 6,823 5,435 2,374 1,772 1,472
Corporate operating income 61,095 48,679 33,847 23,103 17,328
Interest expense 10,358 6,078 4,252 2,908 3,656
Income before taxes 51,938 42,584 29,696 20,244 13,670
Net income $ 30,680 $ 25,857 $ 18,090 $ 12,027 $ 8,068
======== ======== ======== ========== ========
Primary earnings per share:
Net income $ 1.63 $ 1.41 $ 1.21 $ .94 $ .79
======== ======== ======== ========== ========
Weighted average shares outstanding 18,819 18,317 14,950 12,786 10,246
======== ======== ======== ========== ========
Fully diluted earnings per share:/(1)/
Net income $ 1.63 $ 1.41 $ 1.21 $ .94 $ .71
======== ======== ======== ========== ========
Weighted average shares outstanding 18,819 18,317 14,950 12,786 12,390
======== ======== ======== ========== ========
Selected consolidated balance sheet data:
Working capital $135,732 $103,338 $ 92,049 $ 32,137 $ 22,229
Total assets 619,058 478,052 284,031 201,810 120,018
Long-term obligations 182,029 118,697 32,475 56,039 16,864
Stockholders' equity/(2)/ $314,750 $263,587 $194,723 $ 92,256 $ 67,366
======== ======== ======== ========== ========
</TABLE>
(1) For fiscal years 1992, 1993, 1994 and 1995 earnings per share and weighted
average number of shares outstanding for fully diluted computations are
equal to primary computations because such amounts are not materially
different than primary computations.
(2) The company has not declared cash dividends for fiscal years 1991 through
1995.
(3) Fiscal 1992 contained 53 weeks.
17
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Sunrise Medical achieved record sales, net income and earnings per share from
continuing operations for the eighth consecutive year in fiscal 1995. Sales
grew 29% this year, with excellent results from European operations augmenting
another solid domestic sales performance. Acquisitions in the Rehabilitation
and Recovery Groups also contributed to this year's sales growth and represent
significant steps in pursuit of the company's strategic intent to become the
global market leader in recovery, rehabilitation and respiratory products by the
year 2000. Also in support of this long-term objective, sizeable investments
were made in capital expenditures ($27 million) and research and development
spending ($14 million). Highlights of this year's operating performance include
strong global sales of custom wheelchairs and substantially increased market
penetration in Europe across all Sunrise product lines. The company did
encounter meaningful growth in certain raw material costs in 1995 that was not
completely offset by productivity gains, reductions in order costs or price
increases. Acquisition-related debt and this year's higher interest rates also
drove interest expense higher. These factors contributed to a modest decline in
net margin to 5.1% this year. Earnings per share (EPS) advanced 16% to $1.63 in
1995 after a gain of 17% to $1.41 in 1994. EPS of $1.21 in 1993 rose 29%.
NET SALES ANALYSIS
Sales increased 29% to $604 million in 1995, while 1994 sales of $468 million
were 47% higher than 1993. Sales of $319 million in 1993 rose 31% over the
prior year. Acquisitions played a significant role during the last three
years, increasing sales by 8% in 1995, 33% in 1994, and 17% in 1993. Sunrise
used acquisitions during this period to enhance existing businesses, pursue
global expansion and enter a new core business. Although the magnitude of the
impact will vary from year to year, the company expects acquisitions, which are
a key component of its growth strategy, to continue to contribute to overall
sales growth in future years.
ANALYSIS OF PRODUCT LINE SALES CONTRIBUTION
<TABLE>
<CAPTION>
(In millions) 1995 1994 1993
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Custom
Wheelchairs $ 233 39% $ 167 36% $ 145 45%
Patient Aids 73 12% 67 14% 63 20%
Rehabilitation
Products 306 51% 234 50% 208 65%
Pressure
Management 124 21% 99 21% 75 24%
Healthcare Beds 51 8% 42 9% 33 10%
Recovery
Products 175 29% 141 30% 108 34%
Respiratory
Products 123 20% 93 20% 3 1%
Company Total $ 604 100% $ 468 100% $ 319 100%
- ------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
International sales grew 49% in 1995, following growth of 48% in 1994 and 38% in
1993. Fluctuations of international currency rates increased overall sales by
3% in 1995 and reduced sales by 2% in both 1994 and 1993. The effect of
currency variations on reported results is expected to increase as Sunrise
continues to expand its foreign operations. International customers accounted
for 33% of total sales in 1995 versus 29% in 1994.
Concern over the rising cost of healthcare has sparked a marked shift towards
lower priced products and services in the medical community. This shift has
been achieved through the substitution of simpler, more generic products, as
well as by payers obtaining price concessions from healthcare providers, who are
Sunrise Medical's primary customers. As healthcare moves from a largely fee-for-
service pattern to prepaid payment systems, this trend is expected to intensify.
High-volume, full-line providers will have a competitive advantage over those
servicing only niche markets. These trends are causing healthcare providers to
merge at an unprecedented pace, with manufacturers and distributors following a
similar consolidation course. In this market environment, management believes
that future sales growth will be driven predominantly by unit volume growth,
product innovation, contract sales to increasingly larger customers and buying
groups and global expansion.
Sales of Rehabilitation Products reached record levels in each of the last three
years, growing 31% to $306 million in 1995, after increasing 13% to $234 million
in 1994. The custom wheelchair business led this group's results with 40%
growth in the current year, following a 15% increase in 1994. The current year
increase reflects continued expansion in Europe, growth through innovative
products such as new power wheelchair models, and the acquisition of Jay
Medical. Jay's seating systems for wheelchairs extended the company's product
offerings, both in the U.S. and abroad, generating a significant contribution to
1995's custom wheelchair sales growth.
Reflecting the company's commitment to global expansion, Rehabilitation Product
sales in Europe grew by 44% during 1995 after rising 14% in 1994. The current
year increase was driven by solid growth in European base businesses and the
acquisition of two distribution companies during the last half, one in Italy and
another one in Switzerland.
Sales of patient aids increased by 8% to $73 million in 1995, after 6% growth in
1994. In Guardian's maturing market, this improvement in sales growth is
indicative of the progress made by the division's new management team during its
first year. This new team also consolidated manufacturing operations, reducing
overhead and strengthening Guardian's competitive position. Mid-year price
increases for certain products partially offset the impact of this year's higher
costs for aluminum and other key raw materials.
Recovery Product sales have also achieved record levels in each of the last
three years. Sales rose 24% to $175 million in 1995 and 31% to $141 million in
1994. Pressure management products have been the leading contributor to this
growth pattern, advancing 25% to $124 million in 1995, following growth of 32%
in 1994.
Since its initial entry into the air therapy products market in 1990, sales and
rental revenues have been a strong contributor to Bio Clinic's growth. Medical
foam sales also increased in 1995 and 1994, due mainly to new marketing
relationships which added to the division's market share. Bio Clinic has
leveraged its strengths in foam technology and production to address the growing
consumer market through its Comfort Clinic division, which grew 27% in 1995
following 41% higher sales in 1994. Comfort Clinic produces therapeutic foam
mattress pads, specialty pillows and other related products that
19
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
are designed for use in the home and distributes them through retail consumer
channels.
Sales of healthcare beds and furnishings grew 22% in 1995, rising to $51 million
from $42 million in 1994. Sales growth in 1994 was 27%. Growth in 1995 was
largely attributable to the additional sales of Corona, a French healthcare bed
manufacturer acquired in the fourth quarter.
Domestically, 1995 saw excellent market acceptance of Joerns' new Vista home
care bed. Offsetting home care gains, institutional sales and profits were
impacted by delays in nursing home construction for most of 1995, primarily as a
result of rising interest rates in the first half of the year. However, as
interest rates moderated in the second half, Joerns experienced strong orders
and exited the year with a record backlog.
The Respiratory Products Group, formed in 1994 with the acquisitions of
DeVilbiss and Pulsair, contributed record sales of $123 million in 1995, up 33%
from $93 million in the prior year, reflecting both strong internal growth and
the timing of those acquisitions in 1994. The success of the new PulmoMate
compressor/nebulizer and the 5-liter oxygen concentrator product line, along
with the additional unit volume generated by new liquid oxygen products, drove
internal sales growth. Particularly encouraging results were realized in both
U.S. and European markets with the new Horizon "CPAP" product, which drove a
significant increase in sleep therapy sales over the prior year. DeVilbiss also
experienced robust growth in Eastern European, Latin American and Asia/Pacific
Markets.
EXPENSE AND PROFIT ANALYSIS
Gross margin declined by 0.5% in 1995 due primarily to competitive pricing
conditions and cost increases in certain raw materials, which were partially
offset by selective price increases, changes in product mix and improvements in
factory productivity. In 1994 the gross margin increased by 0.4%, aided by a
favorable product mix, as higher-margin air therapy revenues accounted for a
larger percentage of total sales, and from productivity improvements throughout
the company. Sales per Associate for Sunrise, its best overall indicator of
relative productivity, climbed 12% in 1995 and reflects its practice of
continuous improvement.
Marketing, selling and administrative expenses of $128 million decreased 0.1% as
a percentage of net sales in 1995, after an increase of 0.3% in 1994. Both
years benefited from cost control measurers and the leveraging of fixed costs
over higher sales volume, while new product launch costs and expansion of
distribution capabilities had a more significant impact in 1994. Research and
development expenditures increased 26% to $14 million in 1995, following a 49%
jump in 1994.
Amortization of goodwill increased 26% in 1995 as a result of acquisitions in
both 1994 and 1995. Goodwill amortization was up 129% in 1994 due primarily to
the DeVilbiss acquisition.
Gross margin compression, partially offset by tight control of operating
expenses, resulted in a corporate margin of 10.1% in 1995, down 0.3% from a
10.4% margin in 1994. Corporate margin decreased in 1994 by 0.2% from 10.6% in
1993, as gross margin expansion was more than offset by growth in operating
expenses and goodwill amortization.
20
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
ANALYSIS OF EXPENSES AND PROFIT MARGINS
<TABLE>
<CAPTION>
% Increase
----------------
(In millions) 1995 1994 1993 95/94 94/93
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $604.0 $467.9 $319.2 29% 47%
Gross profit 217.7 170.8 115.3 27% 48%
% of net sales 36.0% 36.5% 36.1%
Marketing, selling
and administrative
expenses 128.4 100.2 67.3 28% 49%
% of net sales 21.3% 21.4% 21.1%
Research and
development 13.9 11.0 7.4 26% 49%
% of net sales 2.3% 2.4% 2.3%
Corporate expenses 7.4 5.4 4.4 37% 23%
% of net sales 1.2% 1.2% 1.4%
Amortization of
goodwill and
other intangibles 6.8 5.4 2.4 26% 129%
% of net sales 1.1% 1.2% .7%
Corporate operating
income 61.1 48.7 33.8 26% 44%
% of net sales 10.1% 10.4% 10.6%
Interest and other 9.2 6.1 4.2 51% 47%
% of net sales 1.5% 1.3% 1.3%
Pre-tax income 51.9 42.6 29.7 22% 43%
% of net sales 8.6% 9.1% 9.3%
Income taxes 21.3 16.7 11.6 27% 44%
% of pre-tax
income 40.9% 39.3% 39.1%
Net income $ 30.7 $ 25.9 $ 18.1 19% 43%
% of net sales 5.1% 5.5% 5.7%
- ------------------------------------------------------------------------
</TABLE>
Interest expense, net of interest income, rose 45% in 1995 and 59% in 1994 due
to higher average borrowings required to finance acquisitions completed during
those years and to fund capital expenditures. Higher interest rates also drove
up interest expense in 1995.
The effective tax rate increased in 1995 to 40.9% from 39.3% in 1994 and 39.1%
in 1993. The higher rate in 1995 and 1994 resulted from a higher level of non-
deductible goodwill amortization and a one percentage point increase in the
Federal statutory rate during 1994. The impact of the fiscal 1994 implementation
of the Financial Accounting Standards Board's Statement No. 109, "Accounting for
Income Taxes," offset a portion of the rate increase in 1994, although the
cumulative effect was not material.
21
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Net income rose 19% in 1995 and 43% in 1994. In 1995 net margin dropped to 5.1%
as a result of a lower gross margin, increased interest expense and a higher
effective tax rate, partially offset by lower growth in operating expenses. Net
margin was 5.5% in 1994, slightly less than the net margin achieved in the
preceding year, as higher operating expenses and goodwill amortization offset an
increase in gross margin.
Sunrise attempts to minimize or offset the impact of inflationary pressures on
labor and raw material costs through increased sales volume, improved
productivity and active cost control measures, as it did in 1994. In addition,
product price increases within selected markets in 1995 partially offset recent
raw material cost increases. The company believes that inflationary material
cost increases may continue and that the markets in which it sells its products
will remain price-sensitive, thereby limiting its ability to use price
increases to offset higher costs.
FINANCIAL POSITION, CAPITAL RESOURCES AND LIQUIDITY
CASH FLOW
Cash flows provided by operations increased to $22 million in 1995 from $6
million in 1994, primarily reflecting growth in net income and higher levels of
non-cash charges for depreciation and amortization. Increases in current assets
associated with higher sales volume and expansion of a dealer financing program
were funded from operations.
Accounts receivable growth in both 1994 and 1995 was impacted by changes in
Medicare's claims processing system. In 1994, when Medicare converted to a new
regional claims processing system, reimbursement delays to U.S. home medical
equipment provider customers resulted in slower payments to Sunrise and
increased their need for extended terms. Although Medicare reimbursement
processing improved in 1995, use of extended payment terms and dealer financing
programs as competitive features continued.
Cash generation (net income plus non-cash charges) has and will continue to be
an important source of funding for capital spending, working capital and
acquisitions. In 1995 cash generation rose 31% to $57 million, or 186% of
reported net income.
Sunrise measures the profitability of its asset deployment by tracking its pre-
interest, pre-tax return on average net tangible working assets (net tangible
assets exclusive of cash), called RONA. RONA is a key factor in determining
performance under the Sunrise management incentive bonus program, helping to
ensure that cash is directed to those investments with the highest potential
returns. RONA was 29.6% in 1995, down from last year's 33.3%, primarily as a
result of additional inventory investments necessary to attain further
improvements in service levels, receivables growth as discussed above and the
impact of the acquisition of Corona in this year's fourth quarter.
22
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
CAPITAL EXPENDITURES
Capital spending in 1995 reached $27 million, or 154% of depreciation, while
1994 expenditures of $26 million were 211% of that year's depreciation.
Significant investments made in 1995 include: continued expansion of Bio
Clinic's field rental inventory of air therapy products (20% of total capital
expenditures); expansion of manufacturing capacity; upgrades and enhancements in
machinery; new product tooling; and improvements in telecommunications and data
processing systems. Sunrise expects to invest between $25 million and $30
million in similar capital expenditures in 1996.
ACQUISITIONS
Sunrise completed five acquisitions in 1995 in support of its strategic intent.
These transactions followed the completion of three acquisitions in 1994, seven
in 1993 and another seven in 1992. The total of 22 transactions in four years
came after a four-year period during which minimal acquisition activity took
place and almost all growth was derived internally.
At the beginning of fiscal 1995, Sunrise acquired certain assets and liabilities
of Jay Medical Ltd., a Boulder, Colorado-based manufacturer of wheelchair
cushions and seating systems. Sunrise also acquired Cozy Craft, a domestic line
of seating inserts for which it was already the primary distributor.
Internationally Sunrise acquired Corona, a French manufacturer of healthcare
beds, and two European distribution companies, former importer/distributors for
the company in Italy and Switzerland.
During 1994 Sunrise acquired domestically two manufacturers of respiratory
products used in the home. DeVilbiss, acquired in July 1993, manufactures
oxygen concentrators, compressor nebulizers and sleep therapy equipment. This
purchase represented 94% of the total investment in acquisitions completed
during 1994. Pulsair, acquired in January 1994, manufactures liquid oxygen
products and proprietary oxygen demand delivery devices. Also acquired was
Vitactiv, a Swedish distributor of rehabilitation products.
CAPITAL STRUCTURE AND LEVERAGE
The company's capital structure consists of two components: stockholders' equity
and long-term debt. Stockholders' equity was $314.8 million at the end of 1995,
up $51.2 million from the prior year primarily from the addition of $30.7
million in net income and $14.6 million realized from the issuance of common
stock to sellers of acquired companies and stock optionees. Favorable foreign
currency translation also added $5.9 million to stockholders' equity in 1995.
Long-term debt increased $63 million to $182 million at year end as a result of
borrowings to finance acquisitions and capital expenditures. The ratio of debt
to total capitalization rose to 37% at year end, below the company's self-
imposed target ceiling of 40%. This ratio increased from 31% at the end of
fiscal 1994 as a result of 1995 acquisitions.
Sunrise strives to minimize interest expense while also managing its exposure to
variable interest rates. It employs interest rate exchange agreements (swaps)
to effectively convert its bank borrowings from floating rate into fixed rate
debt. However, as a policy Sunrise does not use interest rate swaps or any
other derivatives that have a level of complexity or a risk higher than the
exposure to be hedged and does not hold or issue such instruments for trading
purposes.
23
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Sunrise has used foreign-denominated borrowings from its multi-currency credit
facility to hedge against foreign currency balance sheet exposures that would
otherwise result from changes in currency values. Total foreign-denominated
debt at year end was $76 million in 1995, $31 million in 1994 and $28 million in
1993.
ANALYSIS OF LONG-TERM DEBT
<TABLE>
<CAPTION>
1995 1994 1993
- -------------------------------------------------------------------
<S> <C> <C> <C>
Fixed-rate debt as a percentage
of total debt at year-end 72% 77% 100%
Weighted average annual interest
rate 6.6% 5.8% 7.9%
Foreign denominated debt as a
percentage of total debt at
year-end 41% 25% 86%
Interest coverage 6x 8x 8x
</TABLE>
As of year end the company's funds availability from its $225 million multi-
currency credit facility was $60 million. Sunrise believes that its internally-
generated funds, together with borrowings under its credit facility, are
sufficient to finance the operating and investing activities of its existing
businesses.
Management periodically evaluates possible acquisitions as vehicles for Sunrise
to enhance future growth by expanding its product offerings or extending its
geographic reach. As with prior acquisitions, Sunrise would expect to finance
these through a 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. In July 1994 Sunrise filed a shelf registration with the Securities
and Exchange Commission permitting the issuance of a maximum of one million
shares of its common stock in connection with acquisitions, of which 659,293
shares remained available for issuance at year end.
DIVIDEND POLICY
Present policy calls for Sunrise to use available cash flow for reinvestment in
its core businesses, for future acquisitions and for debt reduction rather than
to pay a cash dividend. This policy reflects an appraisal by management and the
Board of Directors, which includes the company's largest stockholder, of the
attractiveness of the company's investment opportunities and their confidence in
its ability to continue increasing economic value for its stockholders through
cash retention and reinvestment. This policy is reviewed periodically as
industry conditions change.
INTERNATIONAL OPERATIONS
Management estimates that over one-half of the worldwide market for the
company's products is outside the U.S. Sunrise seeks to access these markets by
expanding globally and establishing manufacturing and distribution capabilities
in key countries.
24
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
This does expose Sunrise to adverse changes in local economic conditions,
governmental purchase curtailments and swings in local currency values in each
of these countries. The company believes that its international operations will
grow to become a formidable competitive advantage in the long run and, over
time, the impact of changing conditions in any single foreign country will be
diluted by greater geographic diversification.
Management believes that favorable demographic and patient care trends, together
with increased recognition of the rights of the disabled, will continue to
create strong demand for Sunrise products worldwide, justifying an aggressive
global expansion strategy.
FOREIGN CURRENCY RISK MANAGEMENT
Operating on a global basis requires a posture of active currency risk
management. To finance imports and exports, Sunrise trades in a variety of
foreign currencies which are constantly shifting in relative value. The company
engages in significant hedging activities to minimize potential transaction
losses on net cash flows and balances denominated in these currencies. These
amounts can arise from cross-border trade flows or intercompany financing
transactions. The company's financial statements are also affected by foreign
currency translation fluctuations. These distort the comparative results of
foreign operations when they are translated into U.S. dollars using dissimilar
rates.
In contrast to transaction gains or losses, translation fluctuations are not the
result of a cash exchange of currencies and, therefore, do not give rise to a
direct economic gain or loss. In these cases the costs to execute hedges would
exceed any consistently realizable tangible benefits. Consequently, Sunrise does
not commit economic resources to hedge against the potential effect of foreign
currency translation fluctuations. It believes that the best long-term
protection of stockholder value is to do business in the broadest possible
basket of currencies, which ultimately should reflect the global distribution of
gross national products.
25
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF MANAGEMENT
The management of Sunrise Medical Inc. is responsible for the preparation,
integrity and accuracy of the accompanying financial statements and related
information. The consolidated financial statements have been prepared in
conformity with generally accepted accounting principles applied on a consistent
basis and include amounts based on our best estimates and informed judgments, as
required.
Management maintains a comprehensive system of internal controls supported by
formal policies and procedures, augmented by periodic internal audits and
management reviews. Although no cost-effective system will preclude all
errors and irregularities, we believe Sunrise Medical has established a system
of internal controls which provides reasonable assurance that assets are
safeguarded against material loss from unauthorized use or disposition,
transactions are recorded in accordance with our policies, and the financial
information presented to our stockholders is reliable. While the company is
organized on the principles of decentralized management, appropriate control
measures are also evidenced by: well-defined organizational responsibilities;
thorough management selection, development and evaluation processes; and
detailed financial planning and reporting systems.
The Audit Committee of the Board of Directors is composed solely of outside
directors. The Audit Committee meets periodically with the independent
auditors, our internal audit department and financial management to ensure that
each is carrying out its responsibilities. Both the independent auditors and
our internal audit department have direct and free access to the Audit
Committee.
The independent auditors, KPMG Peat Marwick LLP, are recommended by the Audit
Committee and selected by the Board of Directors. The consolidated financial
statements have been audited by KPMG Peat Marwick LLP, who have expressed their
opinion elsewhere herein with respect to the fairness of the statements. Their
audits included a review of the system of internal control and tests of
transactions to the extent they considered necessary to render their opinion.
26
<PAGE>
KPMG Peat Marwick LLP
To the Board of Directors and Stockholders
of Sunrise Medical Inc.:
We have audited the accompanying consolidated balance sheets of Sunrise Medical
Inc. and Subsidiaries as of June 30, 1995 and July 1, 1994, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the years in the three-year period ended June 30, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Sunrise
Medical Inc. and Subsidiaries as of June 30, 1995 and July 1, 1994, and the
results of the operations and their cash flows for each of the years in the
three-year period ended June 30, 1995 in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Los Angeles, California
August 11, 1995
27
<PAGE>
SUNRISE MEDICAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
<TABLE>
<CAPTION>
June 30, July 1,
1995 1994
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,740 $ 2,581
Receivables, less allowance for doubtful accounts
of $6,851 and $4,789, respectively 154,862 118,729
Inventories 86,779 65,558
Other current assets 9,497 9,382
-------- --------
Total current assets 252,878 196,250
-------- --------
Property, plant and equipment, at cost:
Land 4,137 3,909
Property and equipment 146,004 111,171
Leasehold improvements 11,194 9,271
-------- --------
161,335 124,351
Less accumulated depreciation and amortization (66,829) (45,807)
-------- --------
Property, plant and equipment, net 94,506 78,544
Goodwill and other intangible assets, less accumulated
amortization of $24,351 and $17,258, respectively 270,478 202,477
Other assets, net 1,196 781
-------- --------
Total assets $619,058 $478,052
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 2,328 $ 1,789
Trade accounts payable 35,122 31,611
Accrued compensation and other expenses 72,485 54,619
Income taxes 7,211 4,893
-------- --------
Total current liabilities 117,146 92,912
-------- --------
Long-term debt, less current installments 182,029 118,697
Deferred income taxes 5,133 2,856
Stockholders' equity:
Preferred stock, $1 par. Authorized 5,000 shares; none issued -- --
Common stock, $1 par. Authorized 40,000 shares; 18,597 and
17,996 shares, respectively, issued and outstanding 18,597 17,996
Additional paid-in capital 189,955 175,965
Retained earnings 101,533 70,853
Cumulative foreign currency translation adjustment 4,665 (1,227)
-------- --------
Total stockholders' equity 314,750 263,587
-------- --------
Total liabilities and stockholders' equity $619,058 $478,052
======== ========
</TABLE>
(See accompanying notes to consolidated financial statements)
28
<PAGE>
SUNRISE MEDICAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Years Ended
-----------------------------------------------
June 30, July 1, July 2,
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Net sales $603,978 $467,906 $319,196
Cost of sales 386,322 297,081 203,879
-------- -------- --------
Gross profit 217,656 170,825 115,317
-------- -------- --------
Marketing, selling and administrative expenses 128,441 100,238 67,269
Research and development expenses 13,937 11,029 7,388
Corporate expenses 7,360 5,444 4,439
Amortization of goodwill and other intangibles 6,823 5,435 2,374
-------- -------- --------
Corporate operating income 61,095 48,679 33,847
-------- -------- --------
Other (expense) income:
Interest expense (10,358) (6,078) (4,252)
Interest income 1,617 56 464
Other income and expense, net (416) (73) (363)
-------- -------- --------
(9,157) (6,095) (4,151)
-------- -------- --------
Income before taxes 51,938 42,584 29,696
Income taxes 21,258 16,727 11,606
-------- -------- --------
Net income $ 30,680 $ 25,857 $ 18,090
======== ======== ========
Earnings per share $ 1.63 $ 1.41 $ 1.21
======== ======== ========
Weighted average number of shares outstanding 18,819 18,317 14,950
======== ======== ========
</TABLE>
(See accompanying notes to consolidated financial statements)
29
<PAGE>
SUNRISE MEDICAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years Ended
----------------------------------------
June 30, July 1, July 2,
1995 1994 1993
---------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 30,680 $ 25,857 $ 18,090
Depreciation and amortization 17,405 12,126 7,333
Amortization of goodwill and other
intangibles 6,823 5,435 2,374
Deferred income taxes 2,262 310 581
Changes in assets and liabilities, net of
effect of acquisitions:
Accounts receivable (21,231) (30,837) (10,312)
Inventories (15,454) (12,680) (4,854)
Prepaid expenses and other assets (1,384) (6,747) (1,031)
Accounts payable and other liabilities 3,294 12,065 (4,195)
--------- -------- --------
Net cash provided by operating activities 22,395 5,529 7,986
--------- -------- --------
Cash flows from investing activities:
Payments for the purchase of property,
plant and equipment (26,748) (25,621) (18,260)
Net cash invested in acquisitions of
businesses (52,254) (104,312) (10,857)
--------- -------- --------
Net cash used for investing activities (79,002) (129,933) (29,117)
--------- -------- --------
Cash flows from financing activities:
Borrowings of long-term debt 208,335 164,344 34,480
Repayments of long-term debt (156,220) (79,053) (56,361)
Proceeds from issuance of common stock 3,604 1,609 82,205
--------- -------- --------
Net cash provided by financing activities 55,719 86,900 60,324
--------- -------- --------
Effect of exchange rate changes on cash 47 47 (498)
--------- -------- --------
Net (decrease) increase in cash and cash
equivalents (841) (37,457) 38,695
Cash and cash equivalents at beginning of year 2,581 40,038 1,343
--------- -------- --------
Cash and cash equivalents at end of year $ 1,740 $ 2,581 $ 40,038
========= ======== ========
</TABLE>
(See accompanying notes to consolidated financial statements)
30
<PAGE>
SUNRISE MEDICAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Common Stock Foreign Total
------------------------ Additional currency stock-
Number paid-in Retained translation holders'
of shares Amount capital earnings adjustment equity
--------- -------- ---------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at July 3, 1992 12,694 $12,694 $ 50,439 $ 26,906 $ 2,217 $ 92,256
------ ------- -------- -------- ------- --------
Exercise of stock options 132 132 433 -- -- 565
Tax benefit from exercise
of stock options -- -- 704 -- -- 704
Issuance of stock for acquisitions 348 348 7,419 -- -- 7,767
Net income -- -- -- 18,090 -- 18,090
Foreign currency translation
adjustment -- -- -- -- (5,595) (5,595)
Common share offering 3,000 3,000 77,936 -- -- 80,936
------ ------- -------- -------- ------- --------
Balance at July 2, 1993 16,174 16,174 136,931 44,996 (3,378) 194,723
------ ------- -------- -------- ------- --------
Exercise of stock options 154 154 697 -- -- 851
Tax benefit from exercise
of stock options -- -- 758 -- -- 758
Issuance of stock for acquisitions 1,668 1,668 37,579 -- -- 39,247
Net income -- -- -- 25,857 -- 25,857
Foreign currency translation
adjustment -- -- -- -- 2,151 2,151
------ ------- -------- -------- ------- --------
Balance at July 1, 1994 17,996 17,996 175,965 70,853 (1,227) 263,587
------ ------- -------- -------- ------- --------
Exercise of stock options 269 269 2,255 -- -- 2,524
Tax benefit from exercise
of stock options -- -- 1,316 -- -- 1,316
Issuance of stock for acquisition 340 340 10,647 -- -- 10,987
Retirement of stock (8) (8) (228) -- -- (236)
Net income -- -- -- 30,680 -- 30,680
Foreign currency translation
adjustment -- -- -- -- 5,892 5,892
------ ------- -------- -------- ------- --------
Balance at June 30, 1995 18,597 $18,597 $189,955 $101,533 $ 4,665 $314,750
====== ======= ======== ======== ======= ========
</TABLE>
(See accompanying notes to consolidated financial statements)
31
<PAGE>
SUNRISE MEDICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Background
- ----------
Sunrise Medical (the "company") designs, manufactures and markets medical
products used in institutional and home care settings that address the
recovery, rehabilitation, and respiratory needs of the patient. Products
include custom manual and electric wheelchairs, wheelchair seating systems,
ambulatory and bath safety aids, home respiratory devices, patient-room beds and
furnishings, and therapeutic mattresses and pressure management systems for
healthcare and consumer markets. Sunrise products are designed to meet the
special needs of five groups of people: the elderly, the disabled, the
recovering patient, the respiratory sufferer and the health-conscious consumer.
Fiscal Year End
- ---------------
The company's fiscal year ends on the Friday closest to June 30th, resulting in
years of either 52 or 53 weeks. The years ended June 30, 1995, July 1, 1994 and
July 2, 1993 each contained 52 weeks.
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of the company and
its domestic and foreign subsidiaries. All material intercompany profits,
balances and transactions have been eliminated.
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents include all cash balances and highly liquid
investments with a maturity of three months or less. The carrying amount of
cash and cash equivalents approximates their fair value.
Inventories
- -----------
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>
June 30, July 1,
1995 1994
-------- --------
<S> <C> <C>
Raw material $39,285 $26,353
Work-in-progress 8,490 8,686
Finished goods 39,004 30,519
------- -------
Total inventories $86,779 $65,558
======= =======
</TABLE>
On a supplemental basis, if all inventories had been valued at FIFO cost,
inventories would have been approximately $89,033 and $67,160 for 1995 and 1994,
respectively.
Revenue Recognition
- -------------------
The company recognizes revenue from product sales at the time of shipment and
provides an appropriate allowance for estimated returns and adjustments.
32
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Research and Development Costs
- ------------------------------
Research and development costs relate to both present and future products and
are expensed in the year incurred.
Property, Plant and Equipment
- -----------------------------
Property, plant and equipment is recorded at cost and depreciated over estimated
useful lives by use of the straight-line or declining balance methods. Assets
recorded under capital leases and leasehold improvements are amortized over the
shorter of their useful lives or the term of the related leases by use of the
straight-line method. The estimated useful lives of property, plant and
equipment range from two to 42 years.
Goodwill
- --------
The excess of purchase prices over the value of net assets of acquired
subsidiaries (goodwill) is amortized by use of the straight-line method over
periods of 20 to 40 years. The company continually reviews goodwill to assess
recoverability from future operations using undiscounted cash flows.
Impairments would be recognized in operating results if a permanent diminution
in value occurs.
Foreign Currency Translation
- ----------------------------
Substantially all assets and liabilities of the company's foreign subsidiaries
are translated at year-end exchange rates, while revenue and expenses are
translated at exchange rates prevailing during the year. Adjustments for foreign
currency translation fluctuations are excluded from net income and are deferred
as a separate element of consolidated stockholders' equity.
Earnings Per Share
- ------------------
Earnings per share (EPS) are calculated by dividing net income by the weighted
average number of shares of common stock and common stock equivalents
outstanding during each year. Fully diluted EPS are not materially different
from primary EPS.
Cash Flow Information
- ---------------------
Cash payments for interest in 1995, 1994 and 1993 were $9,547, $6,125 and
$4,192, respectively. Cash payments of $13,912, $13,057 and $10,666 were made
for income taxes in 1995, 1994 and 1993, respectively.
Accounting Change
- -----------------
In fiscal year 1994, the company has adopted the Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). This
Statement required a change from the deferred method to the asset and liability
method of accounting for income taxes. Using the latter method, deferred income
tax assets and liabilities are recognized for the expected future tax
consequences of events reflected in the company's consolidated financial
statements. Deferred taxes result from timing differences in the recognition of
revenues and expenses for tax and financial statement purposes. Under the asset
and liability method, the resulting deferred tax assets and liabilities are
adjusted for changes in tax rates and other changes in the tax law in the period
that includes the enactment date. The cumulative effect of adopting this
Statement did not have a material impact on the company's financial results in
1994 and, as allowed under SFAS 109, prior-year consolidated financial
statements have not been restated.
Other
- -----
Certain 1994 and 1993 amounts have been reclassified to conform to
classifications used in 1995.
33
<PAGE>
2. ACQUISITIONS
On April 7, 1995, 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, "Corona") for approximately
$42.9 million. The total purchase price of 206 million French francs included
174,918 shares of Sunrise common stock valued at 31 million French francs with
the remainder in cash, which was funded from the company's $225 million multi-
currency line of credit. Corona manufactures and markets hydraulic and electric
beds, as well as, other furniture for the French home care, nursing home and
hospital markets.
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 also financed through the multi-currency
credit facility, 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. Jay manufactures specialized wheelchair seating and positioning products
which it markets throughout the world.
The following summary, prepared on a pro forma basis, combines the consolidated
results of operations as if Jay and Corona had been acquired at the beginning of
fiscal year 1994.
These results have been prepared for comparative purposes only and do not
purport to be indicative of what would have occurred had the acquisition been
made at the beginning of 1994, or of results that may occur in the future.
<TABLE>
<CAPTION>
1995 1994
----------------------
(Unaudited)
<S> <C> <C>
Net sales $637,753 $519,949
Net income $31,936 $28,824
Earnings per share $1.67 $1.54
</TABLE>
During 1995 the company also acquired a U.S. manufacturer of adaptive seating
accessories for wheelchairs and two wheelchair distributors, one in Italy and
one in Switzerland. These three companies were acquired for approximately $3.7
million, consisting of: $2.4 million in cash and $1.3 million in subordinated
notes. Pro forma results of these acquisitions, assuming they had been made at
the beginning of fiscal year 1994, would not be materially different from the
results reported.
During fiscal 1994 (July 1993) the company purchased all of the outstanding
stock of Homecare Holdings, Inc., the parent company of DeVilbiss Health Care,
Inc. ("DeVilbiss") for approximately $132 million. The purchase price included
1,503,900 shares of common stock valued at approximately $34 million. DeVilbiss
manufactures and distributes respiratory products. The company also completed
two additional acquisitions in fiscal 1994. A wheelchair distributor in Sweden
and a domestic manufacturer of liquid oxygen products and proprietary demand
oxygen delivery devices were acquired for approximately $9.2 million, consisting
of $6.0 million in cash, 97,165 shares of the company's common stock valued at
$2.9 million and nearly $0.3 million in subordinated notes.
All acquisitions were accounted for by the purchase method of accounting.
Accordingly, the excess of the aggregate purchase price over the fair market
value of net assets acquired of approximately $69 million in 1995 and $121
million in 1994 were recognized as goodwill and are being amortized over periods
ranging from 20 to 40 years. The operating results of all acquisitions are
34
<PAGE>
included in the company's consolidated results of operations from the date of
acquisition.
3. LEASES
The company leases office and operating facilities, machinery and equipment and
automobiles under operating leases which expire over the next 20 years. Rental
expense for operating leases amounted to $8,332, $7,566 and $5,606 for 1995,
1994 and 1993, respectively.
Minimum lease payments under operating leases expiring subsequent to June 30,
1995 are:
<TABLE>
<CAPTION>
Operating
Years Ended Leases
- ----------- ---------
<S> <C>
1996 $ 8,685
1997 6,486
1998 4,818
1999 3,899
2000 3,239
Thereafter 6,783
--------
Total minimum lease payments $ 33,910
========
</TABLE>
4. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
June 30, July 1,
1995 1994
-------- --------
<S> <C> <C>
Borrowings under multi-currency credit agreement $164,572 $110,273
Unsecured subordinated notes maturing from 1995 to
2001, payable in quarterly installments with interest
rates from 7% to 9.26% 11,829 2,620
Mortgages payable in monthly installments with
interest at various rates from 7.25% to 9.1%,
maturing from 1995 through 2004, secured by property 4,860 5,453
Obligations under capital leases with lease periods
expiring at various dates through 1998, and with
interest at various rates from 6.25% to 14.37% 3,096 2,140
-------- --------
Total long-term debt 184,357 120,486
Less current installments (2,328) (1,789)
-------- --------
Long-term debt, less current installments $182,029 $118,697
======== ========
</TABLE>
35
<PAGE>
4. LONG-TERM DEBT (CONTINUED)
The company amended its five and one-half year multi-currency unsecured credit
agreement as of August 17, 1994. Under this agreement the company has a
revolving credit commitment of $225,000 that reduces to $205,000 in January
1997, $185,000 in 1998 and 165,000 in 1999. Interest will vary from prime
rate to prime rate plus 1/4% in relationship to the company's leverage ratio,
which reflects the levels of the company's earnings and debt. In addition the
company has the option to use interbank offered rates as a basis for interest
and can fix the interest rate on the outstanding portion for up to six months. A
commitment fee of either 1/4% or 3/8% per year, depending upon the company's
leverage ratio, is payable on the unused portion of the line. The agreement
requires the company to comply with certain covenants such as maintenance of
leverage ratio, tangible net worth, interest coverage and certain restrictions
on acquisitions. At June 30, 1995 the company was in compliance with these
covenants.
The company has entered into six interest rate swap agreements with U.S. money
center banks in order to minimize the impact of interest rate fluctuations on
the company's interest expense. Each swap agreement is denominated in the
currency of the related borrowings. Under the terms of each agreement the
company receives compensation when the three-month interbank offered rate of the
respective currency exceeds the swap rate and pays compensation when it falls
below the swap rate.
The following table summarizes the company's interest rate swap agreements:
Interest Rate Swap Agreements
<TABLE>
<CAPTION>
Notional Swap
Amount Currency Rate Effective Period
- ---------- ---------------- ------ -------------------------------
<C> <S> <C> <C>
150,000 French francs 7.14% April 1995 - April 1997
100,000 French francs 7.59% April 1997 - April 2000
30,000 U.S. dollars 5.29% September 1995 - September 1997
30,000 U.S. dollars 5.625% September 1995 - September 2000
60,000 U.S. dollars 3.89% September 1993 - September 1995
40,000/*/ German marks 8.05% February 1992 - February 1997
</TABLE>
/*/ the notional amount of the German mark interest rate swap agreement
amortizes by 5 million German marks per year beginning in February 1994
until maturity.
At June 30, 1995 the three-month interbank offered rates were as follows:
French francs 6.938%
U.S. dollars 5.996%
German marks 4.625%
The fair market value of these agreements is the amount the company would be
required to pay to terminate these swap agreements, which is estimated to be
$119 at June 30, 1995.
36
<PAGE>
4. LONG-TERM DEBT (CONTINUED)
Net receipts or payments under all swap agreements are included in interest
expense. The company is exposed to credit loss in the event of nonperformance
by the other party to the interest rate swap agreements. However, the company
considers the risk of nonperformance by the counter party to be minimal because
the party to each swap agreement is a member of the company's bank group.
5. INCOME TAXES
Effective July 3, 1993, the company changed its method of accounting for income
taxes from the deferred method to the liability method required by SFAS 109.
Refer to Note No. 1 for additional information.
The components of the provision for income taxes are:
<TABLE>
<CAPTION>
Years Ended
--------------------------------
1995 1994 1993
Liability Liability Deferred
Method Method Method
--------- --------- --------
<S> <C> <C> <C>
Current:
Federal $ 9,954 $ 9,018 $ 7,259
State 940 1,007 1,228
Foreign 4,681 2,621 2,031
------- ------- -------
15,575 12,646 10,518
------- ------- -------
Deferred:
Federal 4,060 2,573 368
State 1,397 1,254 516
Foreign 226 254 204
------- ------- -------
5,683 4,081 1,088
------- ------- -------
Total $21,258 $16,727 $11,606
======= ======= =======
</TABLE>
Foreign income taxes are based upon $13,489, $8,027 and $6,607 of foreign
earnings before income taxes during 1995, 1994 and 1993, respectively. No
deferred federal income taxes have been provided for cumulative foreign earnings
of $40,472 as the company has no plans or intentions to repatriate foreign
earnings or liquidate the related foreign assets.
37
<PAGE>
5. INCOME TAXES (CONTINUED)
A reconciliation to the effective income tax rate from the federal statutory
rate follows:
<TABLE>
<CAPTION>
Years Ended
-----------------------------------
1995 1994 1993
Liability Liability Deferred
Method Method Method
---------- ---------- ---------
<S> <C> <C> <C>
Statutory federal income
tax rate 35.0% 35.0% 34.0%
Amortization of goodwill 2.7 3.1 1.6
State income taxes, net of
federal income taxes 2.9 3.4 3.8
Tax-exempt interest -- -- (.4)
Tax credits (.6) (.9) (.2)
Foreign income taxes .4 .2 --
Excludable foreign sales
corporation income (.2) (.2) (.2)
Other, net .7 (1.3) .5
---- ---- ----
Effective income tax rate 40.9% 39.3% 39.1%
==== ==== ====
</TABLE>
Significant components of deferred income tax assets and liabilities at June 30,
1995 and at July 1, 1994 are as follows:
<TABLE>
<CAPTION>
Deferred income tax assets: 1995 1994
-------- ------
<S> <C> <C>
Allowance for doubtful accounts $ 858 $ 841
Inventory reserves 1,364 1,175
Vacation accruals 753 749
Other accrued expenses and valuation reserves 390 1,964
State and local taxes 401 668
------- ------
3,766 5,397
------- ------
Deferred income tax liabilities:
Accumulated depreciation and amortization 5,133 2,856
------- ------
Net deferred income taxes $(1,367) $2,541
======= ======
</TABLE>
38
<PAGE>
5. INCOME TAXES (CONTINUED)
Management believes that realization of the tax benefit of deferred tax assets
is more likely than not, therefore, no valuation allowance was provided at June
30, 1995. The tax effect of certain differences between financial earnings and
taxable earnings is as follows for the fiscal year 1993:
<TABLE>
<S> <C>
Excess income tax depreciation
and capital allowances $ 563
State income tax currently
deductible 416
Inventory reserves not
currently deductible (208)
Allowances for doubtful
accounts not currently
deductible 53
Other, net 264
------
Total $1,088
======
</TABLE>
39
<PAGE>
6. COMMON STOCK PURCHASE RIGHTS
On April 24, 1990 the company's Board of Directors declared a dividend of one
common share purchase right ("Right") for each outstanding share of common
stock. An exercisable Right will, under certain conditions, entitle its holder
to purchase from the company one-half of one share of common stock at the
exercise price of $27.50 per whole share, subject to adjustment, until May 7,
2000. The Rights will become exercisable 10 days after a person (an "Acquiring
Person") acquires 25% or more of the common stock, or 10 days after a person
announces a tender offer which would result in such person acquiring 25% or more
of the common stock. The Rights may be redeemed by the Board of Directors for
$.005 per Right at any time until 10 days following the public announcement that
a person has become an Acquiring Person. Under certain circumstances after a
person becomes an Acquiring Person, or after a merger or other business
combination involving the company, an exercisable Right will entitle its holder
(other than the Acquiring Person) to purchase shares of common stock (or shares
of an acquiring company) having a market value of two times the exercise price
of one Right.
7. PROFIT SHARING/SAVINGS PLAN
The company has a 401(k) profit sharing/savings plan covering most of its U.S.
employees ("Associates"). Under the profit sharing portion of the plan, the
company will contribute to Associates' accounts a percentage of their salary for
the fiscal year. The percentage amount is based upon attainment of certain
earnings targets by the company as a whole in the case of corporate office
Associates, or by the subsidiary of the company for which the Associate works.
The plan is discretionary as the amounts are determined based on earnings
targets set by the Board of Directors. During 1995, 1994 and 1993, $2,373,
$2,469 and $1,962, respectively, were accrued for this plan. Under the savings
feature individual Associates may contribute to the plan. The company will
match Associate contributions in an amount determined by the Board of Directors.
During 1995, 1994 and 1993, $709, $611 and $501 respectively, of Associate
contributions were matched by the company.
8. STOCK OPTION PLANS
The 1983 Stock Option Plan as amended ("the 83 Plan") provides for the grant of
up to 1,800,000 shares of its common stock to officers, key Associates and
outside directors in the form of incentive stock options or non-qualified stock
options. The 83 Plan expires in August 1995.
In August of 1993 the company adopted the 1993 Stock Option Plan ("the 93 Plan")
providing for the grant of up to 4,000,000 shares of its common stock to
officers, outside directors and key Associates in the form of incentive stock
options or non-qualified stock options. At the time of adoption, 300,000
unissued shares of common stock were reserved for future grants under the 93
Plan. Beginning on July 1, 1994, the number of unissued shares of common stock
reserved for future grants under the 93 Plan shall increase by a number equal to
1.5% of the number of shares of common stock issued and outstanding as of the
close of business on the last business day of each fiscal year. The 93 Plan
expires in August 2003.
Under both the 83 Plan and the 93 Plan, the option price (exercise price) is
equal to the closing market stock price on the day prior to grant. Options
become exercisable in four equal annual amounts, commencing one year subsequent
to the grant date. Option exercisability is cumulative. Unexercised options
expire up to 10 years and one day after the date of grant.
40
<PAGE>
8. STOCK OPTION PLANS (CONTINUED)
Shares subject to option under both the 83 Plan and the 93 Plan are summarized
as follows:
<TABLE>
<CAPTION>
Years Ended
---------------------------------------
June 30, July 1, July 2,
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Outstanding at beginning of year 1,312,175 1,144,889 1,007,040
Granted 295,425 345,300 278,800
Exercised (268,750) (153,912) (132,651)
Cancelled (79,675) (24,102) (8,300)
---------- ---------- ----------
Outstanding at end of year 1,259,175 1,312,175 1,144,889
========== ========== ==========
Exercisable at end of year 536,776 507,600 370,539
========== ========== ==========
Price range per share of options
exercisable at end of year $4.57 to $2.32 to $2.32 to
$30.00 $24.00 $17.25
========== ========== ==========
</TABLE>
As of June 30, 1995 there were 318,264 unissued shares of common stock reserved
for future grants under the Plans.
41
<PAGE>
9. GEOGRAPHIC SEGMENT INFORMATION
Selected geographic information is summarized as follows:
<TABLE>
<CAPTION>
Years Ended
---------------------------------
June 30, July 1, July 2,
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Net sales
- ---------
North America $439,382 $359,223 $246,020
Europe 164,596 108,683 73,176
-------- -------- --------
Total $603,978 $467,906 $319,196
======== ======== ========
Corporate operating income
- --------------------------
North America $ 42,352 $ 37,587 $ 26,402
Europe 18,743 11,092 7,445
-------- -------- --------
Total 61,095 48,679 33,847
Interest expense (10,358) (6,078) (4,252)
Interest income 1,617 56 464
Other income and expense, net (416) (73) (363)
-------- -------- --------
Income before taxes $ 51,938 $ 42,584 $ 29,696
======== ======== ========
Identifiable assets
- -------------------
North America $350,355 $326,439 $207,202
Europe 268,703 151,613 76,829
-------- -------- --------
Total $619,058 $478,052 $284,031
======== ======== ========
</TABLE>
Eliminated from net sales for 1995, 1994 and 1993 above were $960, $1,102 and
$988, respectively, of sales by European subsidiaries to North American
subsidiaries, and $13,053, $9,661 and $3,338 of sales, respectively, by North
American subsidiaries to European subsidiaries. Sales between geographic
locations are based upon manufacturing costs plus a reasonable profit element.
No single customer accounted for 10% or more of consolidated sales during any of
the three years in the period ended June 30, 1995.
42
<PAGE>
SELECTED QUARTERLY FINANCIAL DATA
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
First Second Third Fourth Fiscal
Quarter Quarter Quarter Quarter Year
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1995
- ----
Net sales $140,599 $146,863 $148,641 $167,875 $603,978
-------- -------- -------- -------- --------
Corporate operating income 12,654 14,891 15,113 18,437 61,095
Net income 6,324 7,031 7,933 9,392 30,680
======== ======== ======== ======== ========
Earnings per share 0.34 0.38 0.42 0.49 1.63
======== ======== ======== ======== ========
Common stock price range:
High 26 1/2 29 1/4 36 3/4 36 3/8 36 3/4
Low 20 24 26 3/4 27 3/8 20
Ending 26 27 5/8 35 3/4 31 1/8 31 1/8
1994
- ----
Net sales $ 99,862 $111,079 $119,997 $136,968 $467,906
-------- -------- -------- -------- --------
Corporate operating income 9,575 10,433 12,923 15,748 48,679
Net income 5,702 5,162 6,682 8,311 25,857
======== ======== ======== ======== ========
Earnings per share 0.32 0.28 0.36 0.45 1.41
======== ======== ======== ======== ========
Common stock price range:
High 24 7/8 30 1/2 32 3/4 30 1/2 32 3/4
Low 21 3/8 24 1/4 28 3/4 21 1/4 21 1/4
Ending 24 30 29 1/4 22 22
</TABLE>
Earnings per share amounts for each quarter are required to be computed
independently and, therefore, may not equal the amount computed for the year.
43
<PAGE>
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
NONE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Information regarding the directors of the company is included under the
caption "Election of Directors" in the company's Definitive Proxy Statement
for its Annual Meeting of Stockholders to be held on November 7, 1995 and
is incorporated herein by reference. Information regarding the executive
officers of the company is included under a separate caption in Part I
hereof, and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Certain information regarding executive compensation is set forth under the
caption "Compensation of Executive Officers" in the company's Definitive
Proxy Statement for its Annual Meeting of Stockholders to be held on
November 7, 1995 and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information regarding security ownership is set forth under the caption
"Security Ownership of Certain Beneficial Owners and Management" in the
company's Definitive Proxy Statement for its Annual Meeting of Stockholders
to be held on November 7, 1995 and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding related transactions is set forth under the caption
"Certain Transactions" in the company's Definitive Proxy Statement for its
Annual Meeting of Stockholders to be held on November 7, 1995 and is
incorporated herein by reference.
44
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) INDEX TO FINANCIAL STATEMENTS
(1) FINANCIAL STATEMENTS: Page
----
Report of Management 27
Independent Auditors' Report 28
Consolidated balance sheets as of June 30, 1995 and
July 1, 1994 29
Consolidated statements of operations for the years
ended June 30, 1995, July 1, 1994 and July 2, 1993 30
Consolidated statements of cash flows for the years
ended June 30, 1995, July 1, 1994 and July 2, 1993 31
Consolidated statements of stockholders' equity for
the years ended June 30, 1995, July 1, 1994
and July 2, 1993 32
Notes to consolidated financial statements 33
(2) FINANCIAL STATEMENT SCHEDULES:
Schedule VIII -- Valuation and qualifying accounts
and reserves - years ended June 30, 1995,
July 1, 1994 and July 2, 1993 48
All other schedules, for which provision is
made in the applicable accounting regulations
of the Securities and Exchange Commission, are
included in the consolidated financial statements,
are not required under the related instructions,
or are inapplicable and therefore have been omitted.
(B) REPORTS ON FORM 8-K
On September 24, 1994 the company filed a Current Report on Form 8-K dated
September 16, 1994 disclosing the acquisition of certain assets of Jay
Medical Ltd., a Boulder, Colorado based manufacturer of wheelchair
cushions and seating systems, and providing the required audited and pro
forma financial statements.
On March 15, 1995 the company filed a Current Report on Form 8-K dated
March 1, 1995 announcing the signing of a definitive agreement to acquire
the Corona Group of Tours, France a leading French manufacturer of
healthcare beds.
45
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(CONTINUED)
On April 7, 1995, the company filed a Current Report on Form 8-K dated
April 7, 1995 disclosing 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, "Corona"). Corona
manufacturers and markets hydraulic and electric beds and other furniture
for the home care, nursing home, and hospital markets in France.
(C) EXHIBITS
Reference is made to the Index of Exhibits immediately preceding the
exhibits hereto, which index is incorporated herein by reference.
46
<PAGE>
Schedule VIII
SUNRISE MEDICAL INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts and Reserves
Fiscal Years Ended
June 30, 1995, July 1, 1994 and July 2, 1993
(in thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- ---------- ----------------------- ---------- ---------
Additions
-----------------------
Balance at Charged to Charged Balance
beginning costs and to other at end
Description of period expenses accounts Deductions of period
- ------------------- --------- ---------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
1993
- ----
Allowances for doubtful
receivables $2,584 $ 558 $ 100(1) $ (225)(2) $3,017
====== ====== ====== ======= ======
Reserves for inventory
obsolescence $2,475 $ 897 $ 775(1) $ (572)(3) $3,575
====== ====== ====== ======= ======
1994
- ----
Allowances for doubtful
receivables $3,017 $1,219 $ 990(1) $ (437)(2) $4,789
====== ====== ====== ======= ======
Reserves for inventory
obsolescence $3,575 $1,326 $1,471(1) $ (921)(3) $5,451
====== ====== ====== ======= ======
1995
- ----
Allowances for doubtful
receivables $4,789 $3,579 $ 122(1) $(1,639)(2) $6,851
====== ====== ====== ======= ======
Reserves for inventory
obsolescence $5,451 $2,606 $ 176(1) $(1,083)(3) $7,150
====== ====== ====== ======= ======
</TABLE>
(1) Represents foreign currency translation adjustment and amounts recorded on
books of acquired subsidiaries at dates of acquisition.
(2) Includes write-off of uncollectible accounts.
(3) Disposition of items previously reserved.
47
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
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.
By: /s/ Ted N. Tarbet
------------------------
Date: September 20, 1995 Ted N. Tarbet
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 indicated on August 30, 1995.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<C> <S>
/s/ Richard H. Chandler Chairman and Chief Executive Officer
- --------------------------- (principal executive officer)
Richard H. Chandler
/s/ Larry C. Buckelew President, Chief Operating Officer and
- --------------------------- Director
Larry C. Buckelew
/s/ Ted N. Tarbet Senior Vice President and Chief Financial Officer
- --------------------------- (principal financial officer)
Ted N. Tarbet
/s/ John M. Radak Vice President and Controller
- --------------------------- (principal accounting officer)
John M. Radak
</TABLE>
48
<PAGE>
/s/ J. R. Woodhull Director
- --------------------------
J. R. Woodhull
/s/ Joseph Stemler Director
- ---------------------------
Joseph Stemler
/s/ Lee A. Ault III Director
- ---------------------------
Lee A. Ault III
/s/ Lloyd E. Cotsen Director
- ---------------------------
Lloyd E. Cotsen
/s/ Murray H. Hutchison Director
- ---------------------------
Murray H. Hutchison
/s/ William L. Pierpoint Director
- ---------------------------
William L. Pierpoint
/s/ Babette Heimbuch Director
- ---------------------------
Babette Heimbuch
49
<PAGE>
INDEX OF EXHIBITS
<TABLE>
<C> <S>
3.1 Certificate of Incorporation of the company and amendments thereto. /(a)/
3.2 Amendment to Certificate of Incorporation of the company as set forth
under the caption "Article III -Liability of Director to the
Corporation." (Incorporated herein by reference to Page 10 of the 1987
Definitive Proxy Statement of the company)
3.3 Bylaws of the company. /(a)/
3.4 Amendment to Article II, Section 2, of the company's Bylaws.
(Incorporated herein by reference to the company's Form 10-Q for the
periods ended December 28, 1990)
3.5 Amendment to Certificate of Incorporation of the company as to the number
of authorized shares. (Incorporated herein by reference to the company's
Form 10-Q for the periods ended January 1, 1993)
3.6 Amendment of Bylaws to increase number of directors to eight.
(Incorporated herein by reference to the company's Form 10-Q for the
period ended December 31, 1993)
3.7 Amendment of Bylaws to increase number of directors to nine.
(Incorporated herein by reference to the company's Fiscal 1994 Form 10-K)
4.1 Shareholders' Rights Agreement dated April 24, 1990. (Incorporated
herein by reference to the company's Form 10-Q for the periods ended
March 30, 1990)
</TABLE>
50
<PAGE>
INDEX OF EXHIBITS (CONTINUED)
<TABLE>
<C> <S>
10.5 First Amended and Restated Credit Agreement dated as of August 17, 1994
among Sunrise Medical Inc. and certain subsidiary borrowers and
guarantors, Bank of America as agent and other lenders. (Incorporated
herein by reference to the company's Form 8-K dated September 16, 1994)
10.6 Amended and Restated Stock Option Plan for Key Associates. (Incorporated
herein by reference to the 1990 Definitive Proxy Statement of the
company) /(d)/
10.7 1993 Stock Option Plan. (Incorporated herein by reference to the 1993
Definitive Proxy Statement of the company) /(d)/
10.8 Management Incentive Bonus Plan. /(a)(d)/
10.9 Special Bonus Plan. /(c)(d)/
10.10 Agreement for the Purchase of Certain Stock of Homecare Holdings, Inc.
dated as of June 29, 1993 among Sunrise Medical Inc., Homecare Holdings,
Inc., and the selling shareholders listed therein (Incorporated herein by
reference to the company's Form 8-K dated June 29, 1993)
10.11 Asset Purchase Agreement for the Purchase of Certain Assets of Jay
Medical, Ltd. (Incorporated herein by reference to the company's Form 8-K
dated September 16, 1994)
10.12 Agreement for the Purchase of Shares of S.E.P.A.C., Corona S.A., Tecktona
Bois S.A., Tecktona Sante S.A., and Sci La Planche by Homecare Holdings
France S.A. (Incorporated herein by reference to the company's Form 8-K
dated April 7, 1995)
18.0 Letter Re Change to Preferable Accounting Principle. /(b)/
21.0 List of subsidiaries of the company.
23.1 Consent of independent certified public accountants.
</TABLE>
/(a)/ Incorporated herein by reference to the company's Registration Statement
No. 2-86314 filed with Securities and Exchange Commission.
/(b)/ Incorporated herein by reference to the company's Fiscal 1989 Form 10-K.
/(c)/ Incorporated herein by reference to the company's Fiscal 1992 Form 10-K.
/(d)/ Management contract or compensatory plan or arrangement required to be
filed as an Exhibit to this Form 10-K pursuant to Item 14(c).
51
<PAGE>
EXHIBIT 21.0
SUBSIDIARIES OF SUNRISE MEDICAL INC.
Each corporation is the parent of those grouped beneath it.
<TABLE>
<CAPTION>
Name of Subsidiary Incorporation Ownership %
- ----------------------------------------------- -------------- -----------
<S> <C> <C>
Bio Clinic Corporation Delaware 100
Guardian Products Inc. California 100
Joerns Healthcare Inc. Wisconsin 100
Quickie Designs Inc. California 100
Jay Medical Ltd. Delaware 100
SunMed Finance Inc. Delaware 100
SunMed Service Inc. Delaware 100
Sunrise Medical Canada Inc. Canada 100
Sunrise Medical Holdings B.V. Netherlands 100
Norsk Rehab AS Norway 100
Sopur Medizintechnik GmbH Germany 100
Sunrise Medical B.V. Netherlands 100
Sunrise Medical S.A.R.L. France 100
Homecare Holdings France, S.A. France 100
DeVilbiss Medical France, S.N.C. France 100
SCI La Planche S.A. France 100
Corona-Sepac S.A. France 100
Tecktona Sante S.A. France 100
Talleres Uribarri S.L. Spain 100
Sunrise Medical S.R.L. Italy 100
Sunrise Medical Ltd. United Kingdom 100
BEC Mobility Ltd. United Kingdom 100
Minivator Ltd. United Kingdom 100
Sunrise DeVilbiss Polska Spz.o.o. Poland 100
Homecare Holdings, Inc. Delaware 100
DeVilbiss Health Care, Inc. Delaware 100
Homecare Health Products (UK) Ltd. United Kingdom 100
DeVilbiss Health Care (UK) Holdings Ltd. United Kingdom 100
DeVilbiss Health Care (UK) Ltd. United Kingdom 100
Homecare (Deutschland) GmbH Germany 100
DeVilbiss Medizinische Produkte
(Deutschland) GmbH Germany 100
DeVilbiss Health Care (Europa) GmbH Germany 100
Rospo A.G. Switzerland 100
Rehabvision AB Sweden 100
Vitactiv AB Sweden 100
Sunrise Medical Pty Ltd. Australia 100
</TABLE>
The company has omitted from the list six foreign and six domestic subsidiaries.
None of the omitted companies individually or in the aggregate is a significant
subsidiary.
52
<PAGE>
EXHIBIT 23.1
ACCOUNTANTS' CONSENT
The Board of Directors
Sunrise Medical Inc.:
We consent to incorporation by reference in the Registration Statement No.
33-44082 on Form S-4, Statement No. 33-81316 on Form S-4, Statement No. 33-49500
on Form S-3, Statement No. 33-88216 on Form S-8, Statement No. 33-82842 on Form
S-8, Statement No. 33-39887 on Form S-8, Statement No. 33-35797 on Form S-8 and
Statement No. 33-13460 on Form S-8 of Sunrise Medical Inc. of our report dated
August 11, 1995, relating to the consolidated balance sheets of Sunrise Medical
Inc. and subsidiaries as of June 30, 1995 and July 1, 1994 and the related
consolidated statements of operations, stockholders' equity and cash flows and
related financial statement schedules for each of the years in the three-year
period ended June 30, 1995, which report appears in the June 30, 1995 annual
report on Form 10-K of Sunrise Medical Inc.
Los Angeles, California
September 20, 1995
53
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1995 AND THE CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-01-1994
<PERIOD-END> JUN-30-1995
<CASH> 1,740
<SECURITIES> 0
<RECEIVABLES> 161,713
<ALLOWANCES> 6,851
<INVENTORY> 86,779
<CURRENT-ASSETS> 252,878
<PP&E> 161,335
<DEPRECIATION> 66,829
<TOTAL-ASSETS> 619,058
<CURRENT-LIABILITIES> 117,146
<BONDS> 182,029
<COMMON> 18,597
0
0
<OTHER-SE> 296,153
<TOTAL-LIABILITY-AND-EQUITY> 619,058
<SALES> 603,978
<TOTAL-REVENUES> 603,978
<CGS> 386,322
<TOTAL-COSTS> 386,322
<OTHER-EXPENSES> 156,561
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,358
<INCOME-PRETAX> 51,938
<INCOME-TAX> 21,258
<INCOME-CONTINUING> 30,680
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,680
<EPS-PRIMARY> 1.63
<EPS-DILUTED> 1.63
</TABLE>
