-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EbHZjtsrisCAOGOe2bvTxF2tfwd+Ijv2GjYrgcRG8t+7WRGaVnGI1Y5HeuBLtDGQ pHapGg2gihPj/jEf08fFZw== 0000898430-96-000636.txt : 19960227 0000898430-96-000636.hdr.sgml : 19960227 ACCESSION NUMBER: 0000898430-96-000636 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950929 FILED AS OF DATE: 19960223 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUNRISE MEDICAL INC CENTRAL INDEX KEY: 0000720577 STANDARD INDUSTRIAL CLASSIFICATION: ORTHOPEDIC, PROSTHETIC & SURGICAL APPLIANCES & SUPPLIES [3842] IRS NUMBER: 953836867 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11228 FILM NUMBER: 96524703 BUSINESS ADDRESS: STREET 1: 2382 FARADAY AVENUE STE 200 CITY: CARLSBAD STATE: CA ZIP: 92008 BUSINESS PHONE: 619-930-1500 MAIL ADDRESS: STREET 1: 2382 FARADAY AVENUE, SUITE 200 STREET 2: SUITE 150 CITY: CARLSBAD STATE: CA ZIP: 92008 10-Q 1 FORM 10-Q FOR PERIOD ENDED 9/29/95 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ================================================================================ (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES --- EXCHANGE ACT OF 1934 For the quarterly period ended September 29, 1995 OR --- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________________ TO ___________________________ Commission File No. 0-12744 SUNRISE MEDICAL INC. (Exact name of registrant as specified in its charter) Delaware 95-3836867 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2382 FARADAY AVENUE, SUITE 200 CARLSBAD, CA 92008 (Address of principal executive offices) Registrant's telephone number, including area code: (619) 930-1500 Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Number of shares of common stock outstanding at December 29, 1995: 18,825,449 SUNRISE MEDICAL INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)
September 29, June 30, 1995 1995 ------------- -------- (unaudited) (restated) Assets - ------ Current assets: Cash and cash equivalents $ 3,223 $ 1,740 Receivables, net 144,004 141,556 Inventories 86,604 81,941 Other current assets 15,825 11,865 -------- -------- Total current assets 249,656 237,102 -------- -------- Property, plant and equipment, net 92,258 89,133 Goodwill and other intangible assets, net 275,978 270,478 Other assets, net 1,562 1,196 -------- -------- Total assets $619,454 $597,909 ======== ======== Liabilities and Stockholders' Equity - ------------------------------------ Current liabilities: Current installments of long-term debt $ 4,368 $ 2,328 Trade accounts payable 36,257 36,096 Accrued compensation and other expenses 73,239 72,485 Income taxes 5,615 1,102 -------- -------- Total current liabilities 119,479 112,011 -------- -------- Long-term debt, less current installments 187,611 182,029 Deferred income taxes 4,598 4,376 Stockholders' equity: Preferred stock, $1 par. Authorized 5,000 shares; non issued -- -- Common stock, $1 par. Authorized 40,000 shares; 18,824 and 18,597 shares, respectively, issued and outstanding 18,824 18,597 Additional paid-in capital 195,725 189,955 Retained earnings 90,070 86,276 Cumulative foreign currency translation adjustment 3,147 4,665 -------- -------- Total stockholders' equity 307,766 299,493 -------- -------- Total liabilities and stockholders' equity $619,454 $597,909 ======== ========
(See accompanying notes to condensed consolidated financial statements) 2 SUNRISE MEDICAL INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, excpet per share amounts)
Thirteen Weeks Ended September 29, 1995 -------------- (unaudited) Net sales $157,172 Cost of sales 102,472 -------- Gross profit 54,700 -------- Marketing, selling and administrative expenses 37,010 Research and development expenses 3,724 Corporate expenses 2,363 Amortization of goodwill and other intangibles 2,041 -------- Corporate operating income 9,562 -------- Other income (expense): Interest expense (3,530) Interest income and other, net 658 -------- (2,872) -------- Income before taxes 6,690 Income taxes 2,896 -------- Net income $ 3,794 ======== Earnings per share $ 0.20 ======== Weighted average number of shares outstanding 19,147 ========
(See accompanying notes to condensed consolidated financial statements) 3 SUNRISE MEDICAL INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Thirteen Weeks Ended September 29, 1995 -------------- (unaudited) Cash flows from operating activities: Net income $ 3,794 Non-cash items 8,361 Changes in assets and liabilities, net of effect of acquisitions: Receivables, net 272 Inventories (2,923) Other current assets (5,212) Accounts payable and other liabilities (1,154) -------- Net cash provided by operating activities 3,138 -------- Cash flows from investing activities: Purchase of property, plant and equipment, net (6,671) Net cash invested in acquisition of business (2,463) -------- Net cash used for investing activities (9,134) -------- Cash flows from financing activities: Borrowings of long-term debt 51,561 Repayments of long-term debt (44,175) Proceeds from issuance of common stock 70 -------- Net cash provided by financing activities 7,456 -------- Effect of exchange rate changes on cash 23 -------- Net increase in cash and cash equivalents 1,483 Cash and cash equivalents at beginning of period 1,740 -------- Cash and cash equivalents at end of period $ 3,223 ========
(See accompanying notes to condensed consolidated financial statements) 4 SUNRISE MEDICAL INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation The information contained in the consolidated financial statements and footnotes is condensed from that which would appear in the annual consolidated financial statements. Accordingly, the condensed consolidated financial statements included herein should be reviewed in conjunction with the consolidated financial statements and related notes thereto contained in the Annual Report on Form 10-K/A Amendment No. 1 for the fiscal year ended June 30, 1995, filed by Sunrise Medical Inc. (the "company") with the Securities and Exchange Commission. The unaudited condensed consolidated financial statements as of September 29, 1995 and for the thirteen-week period then ended include all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation. The results of operations for interim periods are not necessarily indicative of the results which may be expected for the entire year. On January 4, 1996 the company reported the results of an internal investigation of its financial controls and financial statements for previously reported periods. The company reported that it had determined that net sales, operating income and assets at its Bio Clinic subsidiary had been overstated and liabilities had been understated as a result of actions by a small group of employees in the subsidiary's finance and management information systems departments who falsified accounting entries and computer reports, thereby circumventing the company's internal accounting controls and avoiding detection. Accordingly, the company has restated its financial statements for the years ended June 30, 1995 and July 1, 1994. Because it is not practicable to reconstruct reliable accounting records at its Bio Clinic subsidiary for interim periods during those years, the company has been unable to allocate accurately to individual quarters the full year restatement adjustments for any financial statement item other than net sales. Accordingly, no interim financial statements for the thirteen-week period ended September 30, 1994 are presented herein and previously reported interim results for fiscal 1995 should be disregarded. 2. 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 the following (in thousands):
September 29, June 30, 1995 1995 ------------- -------- Raw material $37,136 $35,126 Work-in-progress 9,629 8,490 Finished goods 39,839 38,325 ------- ------- $86,604 $81,941 ======= =======
Interim period inventory classifications involve a degree of estimation due to the timing of physical inventories throughout the fiscal year. 5 3. Acquisition On July 19, 1995 the company acquired Coopers Healthcare Plc, a United Kingdom- based manufacturer of patient aids, for 222,266 shares of its common stock (valued at $5.8 million) and cash of $2.5 million. The transaction has been accounted for as a purchase. Pro forma results of operations, assuming the acquisition had been made at the beginning of fiscal 1996, would not be materially different from the results reported. 4. Subsequent Events Following the announcement by the company on October 26, 1995 of an internal investigation into accounting practices at its Bio Clinic Corporation subsidiary (Note 1), the company and certain of its current and former officers, directors and employees were named as defendants in a number of stockholder class action lawsuits, each alleging violations of the federal securities laws and seeking unspecified damages. These lawsuits have been consolidated in the U.S. District Court for the Southern District of California. In addition, a number of derivative actions seeking unspecified damages have been filed against the company and certain of its current and former officers, directors and employees in California and Delaware state courts. The company is vigorously defending this litigation. The Securities and Exchange Commission ("SEC") has entered a formal order of private investigation into the circumstances underlying the restatement of the company's 1995 and 1994 financial statements. The company is cooperating fully with the SEC in its investigation. On January 4, 1996 the company further announced that it expected to record a pre-tax charge of $32 to $38 million in its fiscal 1996 second quarter, ending December 29, 1995. This charge will include: the estimated cost of the internal investigation, restatement, and reissuance of historical financial statements; the expected attorneys' fees associated with related pending litigation; the writedown of certain assets at Bio Clinic and Comfort Clinic to reflect revised estimates of net asset realizations; immaterial Bio Clinic adjustments related to periods prior to fiscal 1994; and the one-time estimated expenses associated with a reorganization of company operations as part of a company-wide profit improvement program, including severance, facility closing costs, and write-downs associated with discontinued low-volume products. The company also announced that it had entered into an agreement to sell Bio Clinic's air therapy rental business. The loss on this sale, which was completed on January 31, 1996, is included in the estimate of second quarter charges. 6 SUNRISE MEDICAL INC. AND SUBSIDIARIES ITEM 1. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Net sales for the first quarter of fiscal 1995 were not affected by the restatement described in Note 1 of Notes to Condensed Consolidated Financial Statements. However, it is not practicable to determine the effect on other items in the company's consolidated financial statements for that period. The quarterly trend in net sales may not be indicative of any similar trend with respect to other aspects of the company's consolidated financial statements. Accordingly, the following discussion involves only limited quarterly comparisons, and includes comparisons of divisional sales and profit contribution for all divisions of the company other than the two (Bio Clinic and Comfort Clinic) affected by the restatement. Net sales for the first quarter of fiscal 1996 were $157.2 million compared to $140.6 million in the comparable period of fiscal 1995, an increase of 12%. Companies acquired during the past year accounted for 11% sales growth, foreign currency translation added 2%, and the company's base business declined by approximately 2%, depressed by lower sales of support surfaces (Bio Clinic and Comfort Clinic). Sales of support surfaces declined 37% from last year's first quarter, from $36.5 million to $23.0 million. Comfort Clinic sales in the 1995 period benefitted from strong mass market promotions of therapeutic mattresses and pillows. Together, Bio Clinic and Comfort Clinic reported a first quarter loss of $2.6 million based on divisional profit contribution, as gross margins decreased under market pricing pressures while expenses and staffing levels had not yet been reduced to reflect the lower revenue base. Divisional profit contribution is an internal measurement used by the company to measure divisional, product line and group performance; it does not include any allocations of corporate office expense, goodwill amortization, interest, or income taxes. Exclusive of support surfaces, which represented 15% of consolidated sales in the first quarter of fiscal 1996, the company's other operating divisions reported sales growth of 29% compared to the first quarter of fiscal 1995, with 11% from internal growth, 15% from acquisitions, and 3% from foreign exchange translation. The gross margin of these other divisions increased to 37.5% from 36.5% in the prior year first quarter, reflecting improvements in gross margins for patient aids and respiratory products. The divisional operating expenses (research and development, and marketing, selling and administrative expenses) of these divisions were a comparable 25.1% of net sales in each period. The divisional profit contribution, excluding support surfaces, increased 40% to $16.6 million in the first quarter of fiscal 1996 from $11.9 million in the comparable prior year period. During the first quarter of fiscal 1996, Rehabilitation Products net sales were $87.9 million, an increase of 30% over net sales of $67.5 million in the first quarter of fiscal 1995. Wheelchair sales were particularly strong, while patient aids sales were positively affected by the inclusion of Coopers, a U.K. ambulatory aids manufacturer acquired in July 1995. This group's profit contribution increased faster than sales, as gross margins improved compared to last year's first quarter. 7 Respiratory Products Group sales in the first quarter of fiscal 1996 were $25.6 million, an increase of 1% over the $25.5 million in sales during the first quarter of the prior year. Improved European results were offset by sales weakness in the U.S., where demand was adversely affected by the likelihood of a reduced Medicare reimbursement level for oxygen concentrators. The increase in group profit contribution was slightly ahead of sales growth in comparison to the first quarter of fiscal 1995. The Recovery Products Group reported net sales of $43.5 million in the first quarter, a decline of 8% from net sales of $47.3 million in the first quarter of fiscal 1995, and incurred a loss in each period principally as a result of problems in the support surfaces business. Excluding support surfaces, first quarter net sales increased to $21 million from $11 million, as healthcare bed sales grew substantially, due primarily to the inclusion of Corona, the French bed manufacturer acquired in April 1995. However, this growth was more than offset by the significant sales decline in support surfaces. Profit contribution for the Recovery Products Group, other than support surfaces, increased by a higher percentage than did sales due to Corona's higher margins. Interest expense for the first quarter of fiscal 1996 was $3.5 million. Average borrowings for the quarter were higher than during the first quarter of fiscal 1995 because of debt incurred to finance recent acquisitions. The effective tax rate of 43.3% in the first quarter of fiscal 1996 was slightly higher than the rate of 42.5% for all of fiscal 1995 as a result of higher non-deductible goodwill amortization. Net income for the quarter was $3.8 million or $0.20 per share. LIQUIDITY AND CAPITAL RESOURCES During the first quarter of fiscal 1996 the company's working capital increased by $5.1 million to $130.2 million. Cash of $3.1 million was provided by operating activities. Purchases of property, plant and equipment ($6.7 million) and a business acquisition were financed primarily by additional borrowings under the company's long-term credit facility. Capital expenditures included new product tooling, building improvements, machinery and other equipment to improve efficiency or expand capacity. On January 4, 1996 the company announced that it expects to incur pre-tax charges of $32 million to $38 million in its fiscal 1996 second quarter, ending December 29, 1995. See Note 4 of Notes to Condensed Consolidated Financial Statements for a discussion of these charges. The company amended its five and one-half year multi-currency bank credit facility as of September 29, 1995. Under the amended credit facility, the company's revolving credit commitment was increased to $275 million, with annual reductions of $20 million beginning in January 1998. Funds available as of September 29, 1995 under the amended credit facility were approximately $100 million. 8 As a result of the restatement of its fiscal 1995 and 1994 financial statements and non-recurring charges to be recorded in the second quarter of fiscal 1996, the company anticipated non-compliance with certain covenants contained in its credit facility. On February 16, 1996 the bank group agreed to waive compliance with these covenants until February 28, 1997. Management believes that amendments will be made to the credit facility prior to the end of the company's 1996 fiscal year that will enable the company to be in compliance with the covenants in the credit facility, although no assurance can be given that such amendments will be completed. In connection with the waiver of compliance by the bank group, the company has agreed to an increase in the interest rate and must comply with certain revised covenants, such as maintenance of debt to capital ratio, net worth and interest coverage. In addition, the company must obtain approval of the bank group for any acquisitions. As a result of the aforementioned waiver, borrowings under the credit facility remain classified as long-term debt . IMPACT OF INFLATION Inflation did not have any significant effect on the company's operating results in the first quarter of fiscal 1996. FORWARD-LOOKING STATEMENTS Any statements contained in this Form 10-Q which are not historical facts are forward-looking statements that involve risks and uncertainties. The company wishes to caution the reader that actual events or results may differ materially from these forward-looking statements. These risks and uncertainties include, but are not limited to: the impact of competitive products and pricing pressures; the costs of raw materials; future product demand and market acceptance risks; the effect of economic conditions in the U.S. and abroad; product development, commercialization and technological difficulties; shifts in industry distribution channels; acceleration of the current trend of consolidation of the company's customer base; regulatory related risks; and other risks referenced in this and other Securities and Exchange Commission filings of the company. 9 SUNRISE MEDICAL INC. PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: Number Description -------- ----------- 10.1 Amended and Restated Stock Option Plan for Key Associates. (Incorporated herein by reference to the 1990 Definitive Proxy Statement of the company) 10.2 1993 Stock Option Plan. (Incorporated herein by reference to the 1993 Definitive Proxy Statement of the company) 10.3 Management Incentive Bonus Plan. (Incorporated herein by reference to the company's Registration Statement No. 2-86314 filed with the Securities and Exchange Commission) 10.4 Special Bonus Plan. (Incorporated herein by reference to the company's fiscal 1992 Form 10-K) 10.5 First Amended and Restated Credit Agreement dated as of September 29,1995 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 10-K/A for the year ended June 30, 1995) 27 Financial Data Schedule. (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended September 29, 1995. 10 SUNRISE MEDICAL INC. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SUNRISE MEDICAL INC. Date: February 21, 1996 /s/ Ted N. Tarbet ----------------------------------- Ted N. Tarbet Senior Vice President and Chief Financial Officer (Principal Financial Officer) Date: February 21, 1996 /s/ John M. Radak ----------------------------------- John M. Radak Vice President and Controller (Principal Accounting Officer) 11
EX-27 2 ARTICLE 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 29, 1995 AND THE CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 29, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS JUN-28-1996 SEP-29-1995 3,223 0 153,440 9,436 86,604 249,656 163,944 71,686 619,454 119,479 187,611 0 0 18,824 288,942 619,454 157,172 157,172 102,472 102,472 45,138 0 3,530 6,690 2,896 3,794 0 0 0 3,794 .20 .20
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