Sunrise Medical Shares Fall on Profit Error, SEC Inquiry
Sunrise Medical Inc. shares fell 12% on Thursday after the medical equipment maker said it will restate earnings and fire about 250 employees because of falsely inflated earnings at its Bio Clinic unit.
The Carlsbad, Calif.-based company also said Bio Clinic is being investigated by the Securities and Exchange Commission and that several executives have left. It plans to take a fiscal second-quarter charge to cover costs associated with the unit.
Sunrise shares fell $2.375 to $16.75 on the New York Stock Exchange.
The restatement will show that Bio Clinic lost money in fiscal 1995 rather than posting a profit, meaning it is no longer one of Sunrise’s revenue drivers. Sunrise, touted for its reliable earnings growth, now faces a struggle to regain investor confidence, analysts said.
“You can’t shake hands with an alligator without getting bitten,” said Marcus Robins at Red Chip Review in Portland, Ore.
Sunrise said Bio Clinic’s vice president of finance, Robert Barton, and three other unit employees have left the company. It also said Larry Buckelew, a director, and Brad Nutter, Sunrise’s senior vice president of corporate marketing, resigned.
Sunrise, whose products include electric wheelchairs and walkers, said the earnings restatement will reduce fiscal 1994 net income by 16% and fiscal 1995 net by 37%.
To help earnings rebound, Sunrise plans to fire about 250 workers, or 6% of its work force, and scale back its regional sales forces to six from 12.
The plan is designed to “improve the company’s profitability at the earliest possible time,” Chairman and Chief Executive Richard Chandler said.
The SEC has entered a formal order of private investigation of Bio Clinic, which makes mattress pads and other foam medical products. Sunrise said it is cooperating with the order, which authorizes SEC staff to subpoena documents and testimony.
Sunrise said Oct. 26 that it might have to restate earnings and was conducting an internal investigation of the unit. The report caused its shares to tumble 36% the next day. That spurred some shareholders to file lawsuits against the company, which Sunrise said it plans to vigorously defend.
Sunrise said the investigation found that Bio Clinic personnel erroneously reported revenue and expenses for fiscal 1994, fiscal 1995 and “certain prior years.” The errors were concealed in falsified computer reports, the company said.
“The concealment got by our own internal review system,” Chandler said.
He said those associated with the falsified earnings have left the company. Sunrise said funds were not misappropriated.
Analysts and investors said executives may have falsified earnings to get yearly bonuses based on the unit’s performance.
