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                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
 
                               ----------------
                                  
                               FORM 10-K/A     
                                
                             AMENDMENT NO. 1     
 
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
   ACT OF 1934
 
                    For the 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 IDENTIFICATION NO.)
    INCORPORATION OR ORGANIZATION)
 
                        2382 FARADAY AVENUE, SUITE 200
                              CARLSBAD, CA 92008
                   (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
 
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (619) 930-1500
 
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
 
            TITLE OF CLASS                 NAME OF EACH EXCHANGE ON WHICH
     Common Stock, par value $1.00                   REGISTERED
     Common Stock Purchase Rights              New York Stock Exchange
                                               New York Stock Exchange
 
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 [_]  NO [X]     
   
  State the aggregate market value of the voting stock held by non-affiliates
of the registrant: $311,226,166 as of December 29, 1995.     
   
  On December 29, 1995, the registrant had 18,825,449 outstanding shares of $1
par value common stock.     
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
                 DOCUMENTS                         FORM 10-K REFERENCES
   Portions of the company's Definitive          
  Proxy Statement for its Annual Meeting      Part III, Items 10-13 (Page 38)
              of Stockholders                                  
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                              SUNRISE MEDICAL INC.
                                    
                                 FORM 10-K     
                     
                  FOR THE FISCAL YEAR ENDED JUNE 30, 1995     
 
                                     INDEX
 
<TABLE>   
<CAPTION>
                                                                            PAGE
                                                                            ----
                                     PART I
 
 <C>      <S>                                                               <C>
 Item 1.  Business.......................................................     2
 Item 2.  Properties.....................................................     9
 Item 3.  Legal Proceedings..............................................    10
 Item 4.  Submission of Matters to a Vote of Security Holders............    10
    --    Executive Officers of the Company..............................    11
 
                                    PART II
 
            Market for Registrant's Common Equity and Related Stockholder
 Item 5.  Matters........................................................    14
 Item 6.  Selected Financial Data........................................    15
          Management's Discussion and Analysis of Financial Condition and
 Item 7.  Results of Operations..........................................    16
 Item 8.  Financial Statements and Supplementary Data....................    23
 Item 9.  Disagreements on Accounting and Financial Disclosure...........    23
 
                                    PART III
 
 Item 10. Directors and Executive Officers of the Registrant.............    38
 Item 11. Executive Compensation.........................................    38
 Item 12. Security Ownership of Certain Beneficial Owners and Management.    38
 Item 13. Certain Relationships and Related Transactions.................    38
 
                                    PART IV
 
           Exhibits, Financial Statement Schedules and Reports on Form 8-
 Item 14. K..............................................................    39
 Signatures...............................................................   41
</TABLE>    
 
                                       1
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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 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 support surfaces 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, support surfaces 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. Target customer bases through dedicated salesforces, expanded
distribution capabilities and convenient financing plans that together add up
to superior customer service. Adapt product marketing and pricing strategies
as necessary to correspond to trends in each major geographic market.     
   
  2.SUPERIOR TECHNOLOGY--Through investment in research and development, apply
the latest technologies to solve patient problems associated with post-
surgical care, while steadily reducing costs to make products more affordable
to the people who need them.     
 
  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.
 
                                       2
<PAGE>
 
  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 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 several 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(R) line of custom ultralight manual
wheelchairs is the U.S. and global market leader in this category, enjoying
worldwide name recognition with 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(R) 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 ultra light wheelchairs. The success of the Quickie P200(R), now the
company's leading power wheelchair, was further enhanced with the introduction
of the innovative Quickie P210(R), which provides a power reclining seating
system. Quickie continues to provide products that improve the user's comfort
and functionality. The new Quickie Revolution(R), 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(R) allows its user greater
independence and flexibility in lifestyle.
 
  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(R) 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(TM) 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(TM) and the recently introduced Jay Duo(TM), 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. now exports to more than 40 countries. The success of the
    
                                       3
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PowerTec F50(TM), 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(TM) stairlift,
broadened the Minivator(TM) 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(TM), a
power add-on kit built around Quickie's Breezy(R) 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(TM), a lightweight low end model; the Easy(TM)
series of mid-price lightweight wheelchairs; and a high-end titanium sports
chair, the Allround Titan(TM). In 1995 Sopur added the Starlight(TM) and the
Allround Kid(TM) 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(TM), a low-
priced power wheelchair, and the Nido(TM), 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.
 
  Guardian Products, the leader in the U.S. patient aids market, introduced a
new line of consumer retail products under the brand name CareMate(R). The
CareMate(R) line of patient aid products 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(R) brand
patient aid 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(TM), a unique in-room patient lifting and bathing system,
the Anthros(TM) product line of PVC tube-constructed patient aids, and a
number of attachments and enhancements for its Partner(TM) 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 that foster ease of care
for recovering patients in institutional settings such as hospitals and
nursing homes. This group includes support surface 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 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. Bio Clinic reaches the home care market by forming relationships
with HME providers who purchase 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.     
 
 
                                       4
<PAGE>
 
   
  In 1993 Bio Clinic established a nationwide network to sell, rent and
service air therapy systems and related products in institutional settings.
The average daily rental prices for air therapy products dropped steadily over
the 1993-95 period, reducing their profit contribution. On January 31, 1996
the company completed the sale of Bio Clinic's air therapy rental business--
see "Recent Developments." In the future, air therapy products will be sold to
companies that rent them on a daily basis to healthcare institutions.     
 
  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.
 
  The Joerns(R) 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 state-of-the-art, European 32
millimeter system design for efficient manufacturing and modular assembly of
its case good product lines. The Presidential(TM), Windsor(TM), Classics(TM)
and Americana(TM) 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 Vantage(TM) 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 of
which produces beds and the other manufactures 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
 
  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
 
                                       5
<PAGE>
 
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. Management believes DeVilbiss is the U.S. market leader
in nebulizers and the world market leader in concentrators. New products such
as the Pulsair Walkabout(R), with PulseDose(R) demand oxygen delivery, and the
Horizon(TM), a CPAP device for adult obstructive sleep apnea sufferers, are
expected to enhance future respiratory products sales growth. However, demand
for oxygen concentrators may be adversely affected by the possibility of a
reduced Medicare reimbursement level.     
 
                                SUNMED SERVICE
 
  A new logistics division, called SunMed Service, was created in fiscal 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(R) wheelchairs and many Jay(R) cushion products, will
continue to be ordered directly and shipped from those factories.
 
GEOGRAPHIC SEGMENTS
 
  Financial information concerning the company's two geographic 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 its product features
and performance, the range of products offered, the quality of its customer
service and delivery, competitive prices, the technical expertise of its
salesforces, and the strength of its distribution operations and independent
dealer network.     
   
  In international markets, the company may face competition from other
manufacturers that have larger market shares or other competitive advantages.
    
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.
 
                                       6
<PAGE>
 
  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 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. Programs
provide reimbursement for rentals and sales of medical equipment and related
supplies. Medicare generally pays 80% of the allowable rate of reimbursement,
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 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
 
                                       7
<PAGE>
 
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.
   
  On January 3, 1996 Quickie Designs received a Warning Letter from the FDA
alleging deficiencies in complying with the record keeping, administrative and
procedural requirements of the federal Food, Drug and Cosmetic Act. While a
Warning Letter has no legal effect, it can serve as prior notice for and a
precursor to legal action by the government against a company, its employees
or products. It can also lead to possible delays in the clearance by the FDA
of the introduction of new products, or, in certain cases, result in product
seizures, recalls and even plant shut-downs. Quickie Designs has responded to
the FDA and is taking corrective actions to address the issues raised in the
Warning Letter. Management believes that the response and corrective actions
by Quickie Designs should satisfy the agency's concerns, but no assurances can
be given that such will be the case.     
   
EMPLOYEES (ASSOCIATES)     
   
  The company employed 4,054 full-time Associates worldwide as of June 30,
1995. Approximately 400 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
million, compared to $32.8 million at July 1, 1994. Of this amount in 1995,
$20 million (compared to $10 million for the prior year) 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 predictive 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. Management
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 products are
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.
   
  Although the reimbursement process improved during 1995, the use of extended
terms and other forms of seller financing as a competitive feature continued
to impact accounts receivable levels during fiscal 1995.     
 
                                       8
<PAGE>
 
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 Germany (2), the United Kingdom, 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.
   
RECENT DEVELOPMENTS     
   
  On October 26, 1995 the company issued a press release announcing that it
had commenced an internal investigation of its financial controls and
financial statements for previously reported periods to determine the nature
and extent of accounting practices at its Bio Clinic subsidiary that may have
been inconsistent with generally accepted accounting principles. On January 4,
1996 the company reported that it had determined, as a result of the
investigation, that net sales, operating income and assets at its Bio Clinic
Corporation 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. The restatement reduced previously reported
consolidated net income by $11.2 million in fiscal 1995 and $4.0 million in
fiscal 1994.     
   
  On January 4, 1996 the company further announced that it expects 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 write-down of certain assets at Bio Clinic and Comfort Clinic
to reflect revised estimates of net asset realizations; immaterial Bio Clinic
items related to periods prior to fiscal 1994; and one-time estimated expenses
associated with a reorganization of company operations as part of "Operation
Rebound," a company-wide profit improvement program. These expenses include
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.     
   
  Following the company's October 1995 press release announcing the internal
investigation, 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
(the "SEC") has entered a formal order of private investigation into the
circumstances underlying the restatement of the company's 1995 and 1994
financial results. The company is cooperating fully with the SEC in its
investigation. See Item 3--Legal Proceedings.     
 
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. The company
conducts its U.S. operations from 45 leased facilities (totaling more than one
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.
 
                                       9
<PAGE>
 
  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 with 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.
 
ITEM 3. LEGAL PROCEEDINGS
   
  On October 26, 1995 the company announced an internal investigation into its
financial controls and financial statements for previously reported periods to
determine the nature and extent of accounting practices at its Bio Clinic
Corporation subsidiary that may have been inconsistent with generally accepted
accounting principles. During November and December 1995, 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 SEC has entered a formal order of private investigation into the
circumstances underlying the restatement of the company's 1995 and 1994
financial results. The company is cooperating fully with the SEC in its
investigation.     
 
  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, Ltd. In the suit 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.
   
  The company's Annual Meeting of Stockholders, originally scheduled for
November 7, 1995, has been rescheduled for April 30, 1996. An amended Proxy
Statement will be mailed to stockholders on or about March 31, 1996.     
 
                                      10
<PAGE>
 
                       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 the executive officers (within
the meaning of Item 401 of Regulation S-K) of the company as of January 2,
1996, 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.     
 
<TABLE>   
<CAPTION>
          NAME            AGE                           POSITION
          ----            ---                           --------
<S>                       <C> <C>
Richard H. Chandler.....   52 Chairman of the board, chief executive officer and president
Roberta C. Baade, Ph.D..   51 Vice president of human resources
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.
Steven A. Jaye..........   39 Vice president, general counsel and corporate secretary
Richard H. Kollisch.....   47 President--Sopur GmbH
Gary Limon..............   43 President--Bio Clinic Corporation
Dennis J. McCarthy......   54 President--Joerns Healthcare Inc.
Thomas H. O'Donnell.....   52 Senior vice president--North America
Barrie Payne............   58 Senior vice president--Europe
John M. Radak...........   35 Vice president and controller
Sam Sinasohn............   35 Vice president of taxes
Greg Szabo..............   42 President--Comfort Clinic
Ted N. Tarbet...........   42 Senior vice president and chief financial officer
</TABLE>    
   
  The following persons were Executive Officers of the company during the
fiscal year ended June 30, 1995, but resigned from all positions with the
company as of January 2, 1996: Larry C. Buckelew, 42, who served as president
and chief operating officer; and Brad Nutter, 43, who served as senior vice
president, corporate marketing.     
   
  Richard H. Chandler was elected chairman of the Board of Directors and chief
executive officer of the company in July 1993. In January 1996 he was named to
the additional position of president. 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., except for 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.     
 
  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.
 
  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.
 
 
                                      11
<PAGE>
 
  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 oxygenators 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.
   
  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 affairs for Magma Power Company, a
publicly traded international independent power producer. From 1984 through
1991 he served as a business attorney with the law firm of Latham & Watkins.
Prior to receiving his legal degree, Mr. Jaye served as a design, production
and quality assurance engineer for Spectrolabs Inc.     
 
  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
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.
   
  Thomas H. O'Donnell was appointed senior vice president--North America in
January 1996. Previously, he served as 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, most recently as vice president--product management for
the Entry Systems Division.     
   
  Barrie Payne was named senior vice president--Europe in January 1996, after
serving as managing director of Sunrise Medical Ltd. since June 1983.
Previously, Mr. Payne was president and owner of A-BEC Mobility Inc., a
distributor of electric wheelchairs and other power mobility products that he
founded in 1972.     
   
  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 with
Calcomp Inc., a Lockheed subsidiary that manufactures printers and plotters
for computer graphics applications. From 1982 to 1986 Mr. Radak was an
accountant for Deloitte and Touche LLP. Mr. Radak is a certified public
accountant.     
 
 
                                      12
<PAGE>
 
  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 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.
 
  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.
   
  Larry C. Buckelew was named president of the company in July 1993 and in
August 1994 was elected to the additional positions of director and chief
operating officer. 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. Mr. Buckelew resigned from all
positions with the company as of January 2, 1996.     
   
  Brad Nutter served as senior vice president of corporate marketing from July
1995 until his resignation in January 1996. 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 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.     
 
                                      13
<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>
                                                       FISCAL YEAR       FISCAL YEAR
                                                           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 December 29,
1995 was 711. The company estimates it has approximately 10,600 beneficial
holders of its common stock. The closing price of the common stock on December
29, 1995 was 18 1/2.     
 
  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.
 
                                      14
<PAGE>
 
ITEM 6. SELECTED FINANCIAL DATA
   
  The following selected financial data should be read in conjunction with the
Consolidated Financial Statements and the Notes thereto included elsewhere
herein. The company has restated previously issued financial results for the
fiscal years ended June 30, 1995 and July 1, 1994. The restatement primarily
reflects adjustments to reduce the recorded amounts of receivables,
inventories, and property, plant and equipment at the company's Bio Clinic
subsidiary, thereby reducing consolidated net income. See Note 2 of Notes to
Consolidated Financial Statements.     
 
<TABLE>   
<CAPTION>
                                                 YEARS ENDED
                               ------------------------------------------------
                                JUNE 30,   JULY 1,   JULY 2,  JULY 3,  JUNE 28,
                                  1995       1994      1993   1992(4)    1991
                               ---------- ---------- -------- -------- --------
                               (RESTATED) (RESTATED)
                                   (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                            <C>        <C>        <C>      <C>      <C>
SELECTED CONSOLIDATED RESULTS
 OF OPERATIONS DATA:
  Net sales...................  $601,927   $466,942  $319,196 $243,920 $203,825
  Gross profit................   205,651    166,947   115,317   86,218   69,909
  Marketing, selling and
   administrative expenses....   134,511    102,776    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..    43,020     42,263    33,847   23,103   17,328
  Interest expense............    10,358      6,078     4,252    2,908    3,656
  Income before taxes.........    33,863     36,168    29,696   20,244   13,670
  Net income..................  $ 19,471   $ 21,809  $ 18,090 $ 12,027 $  8,068
                                ========   ========  ======== ======== ========
  Earnings per share(1).......  $   1.03   $   1.19  $   1.21 $    .94 $    .79
                                ========   ========  ======== ======== ========
  Weighted average shares
   outstanding(1).............    18,819     18,317    14,950   12,786   10,246
                                ========   ========  ======== ======== ========
SELECTED CONSOLIDATED BALANCE
 SHEET DATA:
  Working capital.............  $125,091   $101,479  $ 92,049 $ 32,137 $ 22,229
  Total assets................   597,909    471,667   284,031  201,810  120,018
  Long-term debt(2)...........   182,029    118,697    32,475   56,039   16,864
  Stockholders' equity(3).....  $299,493   $259,539  $194,723 $ 92,256 $ 67,366
                                ========   ========  ======== ======== ========
</TABLE>    
--------
   
(1) For fiscal years 1995, 1994, 1993 and 1992 earnings per share and weighted
    average number of shares outstanding for fully diluted computations are
    not materially different from primary computations. For fiscal year 1991,
    fully diluted earnings per share were $.71 (based on 12,390 weighted
    average common and common equivalent shares).     
   
(2) Excludes current installments of long-term debt.     
   
(3) The company did not declare cash dividends for the fiscal years 1991
    through 1995.     
(4) Fiscal year 1992 contained 53 weeks.
 
                                      15
<PAGE>
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
       RESULTS OF OPERATIONS
   
RESTATEMENT     
   
  On October 26, 1995 the company issued a press release announcing that it
had commenced an internal investigation of its financial controls and
financial statements for previously reported periods to determine the nature
and extent of accounting practices at its Bio Clinic subsidiary that may have
been inconsistent with generally accepted accounting principles. On January 4,
1996 the company reported that it had determined, as a result of the
investigation, that net sales, operating income and assets at its Bio Clinic
Corporation 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. The restatement reduced previously reported
consolidated net income by $11.2 million in fiscal 1995 and $4.0 million in
fiscal 1994. See Note 2 of Notes to Consolidated Financial Statements.     
   
RESULTS OF OPERATIONS     
   
  Sunrise Medical achieved record sales for the twelfth consecutive year in
fiscal 1995. Sales grew 29%, with positive 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 represented 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 ($23
million) and research and development spending ($14 million). Highlights of
this year's performance were strong global sales of custom wheelchairs and
substantially increased market penetration in Europe across all Sunrise
product lines.     
   
  The company, however, encountered growth in certain raw material costs in
1995 that were not offset by productivity gains, reductions in order costs, or
price increases. The company's support surface business experienced declining
prices and gross margins. Also, acquisition-related debt and higher interest
rates resulted in higher interest expense. These factors contributed to lower
net income in 1995 of $19,471, a decrease of 11% compared to net income of
$21,809 in 1994 (which followed a 21% increase over net income of $18,090 in
1993). Earnings per share declined 13% to $1.03 in 1995, after a decline of 2%
to $1.19 in 1994 and an increase of 29% to $1.21 in 1993.     
   
NET SALES ANALYSIS     
   
  Sales increased 29% to $602 million in 1995, while 1994 sales of $467
million were 46% higher than 1993's sales of $319 million. 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 its overall sales growth.     
 
                                      16
<PAGE>
 
                  
               ANALYSIS OF PRODUCT LINE SALES CONTRIBUTION     
 
<TABLE>     
<CAPTION>
                                                     1995      1994      1993
                                                   --------  --------  --------
                                                         (IN MILLIONS)
   <S>                                             <C>  <C>  <C>  <C>  <C>  <C>
   Rehabilitation Products:
     Custom Wheelchairs........................... $233  39% $167  36% $145  45%
     Patient Aids.................................   73  12%   67  14%   63  20%
                                                   ---- ---  ---- ---  ---- ---
       Subtotal...................................  306  51%  234  50%  208  65%
                                                   ---- ---  ---- ---  ---- ---
   Recovery Products:
     Support Surfaces.............................  122  20%   98  21%   75  24%
     Healthcare Beds..............................   51   9%   42   9%   33  10%
                                                   ---- ---  ---- ---  ---- ---
       Subtotal...................................  173  29%  140  30%  108  34%
                                                   ---- ---  ---- ---  ---- ---
   Respiratory Products...........................  123  20%   93  20%    3   1%
                                                   ---- ---  ---- ---  ---- ---
   Company Total.................................. $602 100% $467 100% $319 100%
                                                   ==== ===  ==== ===  ==== ===
</TABLE>    
   
  International sales grew 49% in 1995, following growth of 48% in 1994.
International customers accounted for 33% of total sales in 1995 compared to
29% in 1994 and 28% 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.     
 
  Concern over the rising cost of healthcare has sparked a marked shift toward
lower priced products and services in the medical community. This shift has
been achieved through the substitution of simpler and more generic products,
as well as by payers obtaining price concessions from healthcare providers,
who are the company'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; manufacturers and distributors
are 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 by 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 sales
increase in 1995 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. This
followed the acquisition of several European wheelchair manufacturers and
distributors in 1993 and 1992. The sales increase in 1995 was driven by solid
growth in European base businesses and the acquisition of two distribution
companies during the second half of the year, one in Italy and 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.
 
                                      17
<PAGE>
 
   
  Recovery Product sales have also achieved record levels in each of the last
three years. Sales rose 24% to $173 million in 1995 after increasing 30% to
$140 million in 1994. Support surfaces products have been the leading
contributor to this growth pattern, advancing 24% to $122 million in 1995,
following growth of 31% to $98 million in 1994. Bio Clinic has built upon its
experience in foam technology and production to address the growing consumer
market through its Comfort Clinic division. Comfort Clinic produces
therapeutic foam mattress pads, specialty pillows and other related products
that 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. This growth in 1995 was largely attributable
to the additional sales of Corona, a French healthcare bed manufacturer
acquired early in the fourth quarter. Sales growth in 1994 was 27%.     
   
  Domestically, 1995 saw excellent market acceptance of Joerns' new Vantage
home care bed. Offsetting home care gains, institutional sales and profits
were adversely 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 had a record backlog at the end of the year.
       
  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 five-liter oxygen concentrator product line,
along with the additional unit volume generated by new liquid oxygen products,
drove internal sales growth. The new Horizon "CPAP" product had encouraging
results in both U.S. and European markets, contributing to a significant
increase in sleep therapy sales over the prior year. DeVilbiss also
experienced growth in the Eastern European, Latin American and Asia/Pacific
markets.     
   
EXPENSE AND PROFIT ANALYSIS     
   
  Gross margin (gross profit as a percentage of net sales) declined by 1.6% in
1995 due primarily to a significant decline in the profitability of the
company's support surfaces business. This decline resulted from several
factors, including a continuing shift away from the use of disposable foam
overlays in hospitals, compressed margins in the retail market for mattress
pads and pillows, and a decline in average daily rental rates in the air
therapy rental business. For the company's other product lines, competitive
pricing conditions and cost increases in certain raw materials were offset by
selective price increases, changes in product mix and improvements in factory
productivity. In 1994 gross margin declined by 0.3%, as lower margins on
support surfaces products were partially offset by productivity improvements
throughout the company. Sales per Associate, considered by management to be
the company's best overall indicator of relative productivity, rose 12% in
1995 and 8% in both 1994 and 1993. These increases reflect the company's
practice of continuous improvement in production and administrative processes.
       
  Marketing, selling and administrative expenses of $134.5 million were 0.3%
higher as a percentage of net sales in 1995, after an increase of 0.9% in
1994. New product launch costs and expansion of distribution capabilities more
than offset cost control measures and the leveraging of fixed costs over
higher sales volume. Significant expense increases were incurred in the
support surfaces business, including costs of an expanded infrastructure in
anticipation of continued sales growth, higher marketing costs, and increased
bad debt expenses.     
   
  The company's support surfaces business operated at a loss in fiscal 1995.
In the quarter ended December 29, 1995, management initiated a number of
actions designed to return this business to profitability, including staffing
reductions and the decision to sell Bio Clinic's air therapy rental business.
This sale was completed in January 1996. However, no assurance can be given
that these actions will achieve the intended objectives. See "Recent
Developments" below.     
 
                                      18
<PAGE>
 
                    
                 ANALYSIS OF EXPENSES AND PROFIT MARGINS     
 
<TABLE>     
<CAPTION>
                                                                    % INCREASE
                                                                    -----------
                                             1995    1994    1993   95/94 94/93
                                            ------  ------  ------  ----- -----
                                                     (IN MILLIONS)
   <S>                                      <C>     <C>     <C>     <C>   <C>
   Net sales............................... $601.9  $466.9  $319.2    29%   46%
                                            ------  ------  ------   ---   ---
   Gross profit............................  205.7   166.9   115.3    23%   45%
     % of net sales........................   34.2%   35.8%   36.1%
   Marketing, selling and administrative
    expenses...............................  134.5   102.8    67.3    31%   53%
     % of net sales........................   22.3%   22.0%   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    35%   23%
     % of net sales........................    1.2%    1.2%    1.4%
   Amortization of goodwill and other in-
    tangibles..............................    6.8     5.4     2.4    26%  129%
     % of net sales........................    1.1%    1.2%     .7%
                                            ------  ------  ------   ---   ---
   Corporate operating income..............   43.0    42.3    33.8     2%   25%
     % of net sales........................    7.1%    9.1%   10.6%
   Interest and other......................    9.2     6.1     4.2    50%   47%
     % of net sales........................    1.5%    1.3%    1.3%
                                            ------  ------  ------   ---   ---
   Income before taxes.....................   33.9    36.2    29.7    -6%   22%
     % of net sales........................    5.6%    7.7%    9.1%
   Income taxes............................   14.4    14.4    11.6     0%   24%
     % of income before taxes..............   42.5%   39.7%   39.1%
                                            ------  ------  ------   ---   ---
   Net income.............................. $ 19.5  $ 21.8  $ 18.1   -11%   21%
     % of net sales........................    3.2%    4.7%    5.7%
                                            ------  ------  ------   ---   ---
</TABLE>    
   
  Research and development expense increased 26% to $14 million in 1995,
following a 49% jump in 1994. The growth of research and development spending
has generally been consistent with sales growth. Amortization of goodwill
increased 26% in 1995 as a result of acquisitions in both 1994 and 1995.
Goodwill amortization was 129% higher in 1994 due primarily to the DeVilbiss
acquisition.     
   
  Corporate operating income declined as a percentage of net sales in both
1995 and 1994. The compression in gross margin in 1995 contributed most of the
two percentage point decline in corporate operating margin to 7.1% compared to
9.1% in the prior year. In 1994, a modest decline in the gross margin
percentage, as well as growth in operating expenses and goodwill amortization,
resulted in a decline in corporate operating margin to 9.1% from the 10.6%
recorded in 1993.     
   
  Interest expense, net of interest and other income, rose 50% in 1995 and 47%
in 1994 due to higher average borrowings required to finance acquisitions
completed during those years and to fund capital expenditures. Higher interest
rates also contributed to the increase in interest expense in 1995.     
   
  The effective tax rate increased in 1995 to 42.5% from 39.7% in 1994, and
39.1% in 1993. The higher rates in 1995 and 1994 resulted from higher non-
deductible goodwill amortization and the one percentage point increase in the
Federal statutory rate during 1994. The impact of implementation in 1994 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.     
   
  Net income declined 11% in 1995 after an increase of 21% in 1994. In 1995
net margin dropped to 3.2% as a result of a lower gross margin, increased
interest expense and a higher effective tax rate. Net margin was 4.7% in 1994
compared to the 5.7% net margin achieved in 1993, reflecting higher operating
expenses and goodwill amortization.     
 
                                      19
<PAGE>
 
  The company 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
1995, product price increases within selected markets 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.
   
RECENT DEVELOPMENTS     
   
  In January 1996 the company announced a number of changes to its
organizational structure and its approach to serving its customers. Its U.S.
operations have been integrated within four markets--home medical equipment,
nursing homes, hospitals and consumer. As a result, the company's twelve
salesforces in the U.S. were consolidated into six, effective February 1,
1996. These changes are intended to reduce selling costs while promoting
closer customer relationships. In Europe, the company's operations have been
organized geographically by country.     
   
  As part of the reorganization, the company decided to exit from Bio Clinic's
air therapy rental business and close its 31 rental service centers. This
business, initiated in 1992, generated rental revenues of approximately $12
million in fiscal 1995. The sale was completed on January 31, 1996.     
   
  The company is also undertaking a comprehensive review of spending in all
areas of its business. In addition to the salesforce consolidation, some
facilities will be closed and certain low volume products will be
discontinued. The company expects to reduce its workforce by approximately
250, or 6% of the total (including 83 involved in the air therapy rental
business). The company will record pre-tax charges of $32 to $38 million in
the second quarter of fiscal 1996, including the estimated cost of the
investigation and restatement, estimated attorneys' fees associated with the
defense of stockholder litigation, asset write-downs at Bio Clinic and the
loss on the sale of its air therapy rental business, and expenses associated
with the reorganization.     
 
FINANCIAL POSITION, CAPITAL RESOURCES AND LIQUIDITY
   
CASH FLOW     
   
  Cash flows provided by operations increased to $19 million in 1995 from $3
million in 1994 and $8 million in 1993. The lower level in 1994 reflects
significant growth in receivables and inventories. Both 1995 and 1994 cash
flows include the benefit of higher non-cash charges for depreciation and
amortization.     
 
  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 (defined as net income plus non-cash charges) was an
important source of funding for capital spending, working capital and
acquisitions in 1995. Cash generation rose 13% to $45 million, or 230% of
reported net income, compared to $40 million in 1994, or 182% of 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, a key measure in determining
performance under the Sunrise management incentive bonus program, which is
designed to help direct cash to those investments with the highest potential
returns. RONA was 22.3% in 1995, down from 30.0% in 1994, as a result of lower
corporate operating income as a result of operating losses in the company's
support surfaces business. RONA was also impacted negatively by asset growth
related to additional inventory necessary to attain further improvements in
service levels and by the growth in receivables as discussed above. RONA in
1994 was below the 36.5% achieved in 1993, primarily the result of the DMERC-
related increase in accounts receivable mentioned above and a decline in
operating income in the support surfaces business.     
 
                                      20
<PAGE>
 
   
CAPITAL EXPENDITURES     
   
  Capital spending in 1995 reached $23.1 million, or 137% of depreciation,
while 1994 expenditures of $23.4 million were 192% of depreciation expense. In
1993 capital expenditures were $18.3 million, or 249% of depreciation expense.
Significant investments made in 1995 include expansion of manufacturing
capacity, upgrades and enhancements in machinery, new product tooling, and
improvements in telecommunications and data processing systems. The company
expects capital expenditures in 1996 to be comparable to the 1995 level.     
 
ACQUISITIONS
 
  Sunrise completed five acquisitions in 1995 in support of its strategic
objectives. These transactions followed 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. The company 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
importers/distributors for the company.
 
  During 1994 Sunrise acquired two domestic 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 $299.5 million at the end
of 1995, up $40 million from the prior year primarily from the addition of
$19.5 million in net income and $14.6 million realized from the issuance of
common stock to sellers of acquired companies and stock optionees. In
addition, favorable foreign currency translation 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 38% at year end, below the company's
self-imposed target ceiling of 40%. This ratio increased from 31% at the end
of fiscal 1994, primarily as a result of borrowings to finance 1995
acquisitions.     
                           
                        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....................................... 4.2x  7.0x  8.0x
</TABLE>    
 
  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
 
                                      21
<PAGE>
 
instruments for trading purposes. 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.
   
  As of June 30, 1995 the company's funds availability from its $225 million
multi-currency credit facility was approximately $60 million. On September 29,
1995, this credit facility was amended to increase the total commitment to
$275 million (with annual reductions of $20 million in January 1998, 1999 and
2000).     
   
  As a result of the restatement of its 1995 and 1994 financial statements and
the unusual charges to be recorded in the second quarter of 1996, the company
will not be in compliance with certain covenants contained in its credit
facility. On February 16, 1996 the bank group agreed to a waiver of compliance
with these covenants until February 28, 1997. Management believes that
appropriate amendments will be made to the credit facility prior to the end of
the company's 1996 fiscal year, 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 it
is charged 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.     
   
INTERNATIONAL OPERATIONS     
   
  Management estimates that over half of the worldwide market for the
company's products is outside the U.S. The company seeks to access these
markets by expanding globally and establishing manufacturing and distribution
capabilities in key countries. This exposes 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,
over time, the impact of changing conditions in any single foreign country
will be diluted by greater geographic diversification.     
 
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.
   
DIVIDEND POLICY     
   
  The company's present policy is 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.     
 
                                      22
<PAGE>
 
   
LITIGATION     
   
  Following the announcement of the internal investigation into financial
reporting practices at the company's Bio Clinic subsidiary, 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 has entered a formal order of private
investigation into the circumstances underlying the restatement of the
company's 1995 and 1994 financial results. The company is cooperating fully
with the SEC in its investigation. See Item 3--Legal Proceedings. In
connection with this litigation and investigation, the company has incurred
and is incurring significant legal and other costs which the company has
funded and expects to continue to fund from operating cash flows and
borrowings under its bank credit facility.     
   
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA     
   
  The following financial statements are included herein:     
 
<TABLE>       
<CAPTION>
                                                                           PAGE
                                                                           ----
      <S>                                                                  <C>
      Independent Auditors' Report........................................  24
      Consolidated balance sheets as of June 30, 1995 and July 1, 1994....  25
      Consolidated statements of operations for the years ended June 30,
       1995,
       July 1, 1994 and July 2, 1993......................................  26
      Consolidated statements of cash flows for the years ended June 30,
       1995,
       July 1, 1994 and July 2, 1993......................................  27
      Consolidated statements of stockholders' equity for the years ended
       June 30, 1995, July 1, 1994 and July 2, 1993.......................  28
      Notes to consolidated financial statements..........................  29
</TABLE>    
 
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
 
  None.
 
                                      23
<PAGE>
 
                         INDEPENDENT AUDITOR'S REPORT
 
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. In
connection with our audits of the consolidated financial statements, we have
also audited the financial statement schedule as listed in Item 14.a(2). These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements and financial statement
schedule 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 their 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. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
   
  As disclosed in Note 2 to the consolidated financial statements, the Company
has restated its consolidated financial statements and financial schedule II
as of June 30, 1995 and July 1, 1994, and for the years then ended.     
 
                                          KPMG Peat Marwick LLP
 
Los Angeles, California
   
August 11, 1995, except as to Notes 2 and 10 to the consolidated financial
statements,which are as of January 4, 1996 and February 16, 1996, respectively
    
                                      24
<PAGE>
 
                     SUNRISE MEDICAL INC. AND SUBSIDIARIES
 
                          CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)
 
<TABLE>   
<CAPTION>
                                                          JUNE 30,    JULY 1,
                                                            1995       1994
                                                          ---------  ---------
                                                          (RESTATED) (RESTATED)
<S>                                                       <C>        <C>
                         ASSETS
Current assets:
  Cash and cash equivalents.............................. $  1,740   $  2,581
  Receivables, less allowance for doubtful accounts of
   $6,858
   and $4,373, respectively..............................  141,556    114,633
  Inventories............................................   81,941     65,558
  Other current assets...................................   11,865      9,413
                                                          --------   --------
Total current assets.....................................  237,102    192,185
                                                          --------   --------
Property, plant and equipment, at cost:
  Land...................................................    4,137      3,909
  Property and equipment.................................  140,152    108,923
  Leasehold improvements.................................   11,194      9,271
                                                          --------   --------
                                                           155,483    122,103
  Less accumulated depreciation and amortization.........  (66,350)   (45,879)
                                                          --------   --------
Property, plant and equipment, net.......................   89,133     76,224
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............................................. $597,909   $471,667
                                                          ========   ========
          LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Current installments of long-term debt................. $  2,328   $  1,789
  Trade accounts payable.................................   36,096     31,611
  Accrued compensation and other expenses................   72,485     54,619
  Income taxes...........................................    1,102      2,687
                                                          --------   --------
Total current liabilities................................  112,011     90,706
                                                          --------   --------
Long-term debt, less current installments................  182,029    118,697
Deferred income taxes....................................    4,376      2,725
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......................................   86,276     66,805
  Cumulative foreign currency translation adjustment.....    4,665     (1,227)
                                                          --------   --------
Total stockholders' equity...............................  299,493    259,539
                                                          --------   --------
Total liabilities and stockholders' equity............... $597,909   $471,667
                                                          ========   ========
</TABLE>    
 
         (See accompanying notes to consolidated financial statements)
 
                                       25
<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
                            ---------- ---------- --------
                            (RESTATED) (RESTATED)
<S>                         <C>        <C>        <C>
Net sales.................   $601,927   $466,942  $319,196
Cost of sales.............    396,276    299,995   203,879
                             --------   --------  --------
Gross profit..............    205,651    166,947   115,317
                             --------   --------  --------
Marketing, selling and ad-
 ministrative expenses....    134,511    102,776    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 in-
 come.....................     43,020     42,263    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.......     33,863     36,168    29,696
Income taxes..............     14,392     14,359    11,606
                             --------   --------  --------
Net income................   $ 19,471   $ 21,809  $ 18,090
                             ========   ========  ========
Earnings per share........   $   1.03   $   1.19  $   1.21
                             ========   ========  ========
Weighted average number of
 shares outstanding.......     18,819     18,317    14,950
                             ========   ========  ========
</TABLE>    
 
 
         (See accompanying notes to consolidated financial statements)
 
                                       26
<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
                                             ----------  ----------  --------
                                             (RESTATED)  (RESTATED)
<S>                                          <C>         <C>         <C>
Cash flows from operating activities:
  Net income................................ $  19,471   $  21,809   $ 18,090
  Depreciation and amortization.............    16,854      12,198      7,333
  Amortization of goodwill and other
   intangibles..............................     6,823       5,435      2,374
  Deferred income taxes.....................     1,636         179        581
Changes in assets and liabilities, net of
 effect of acquisitions:
  Accounts receivable.......................   (12,021)    (26,741)   (10,312)
  Inventories...............................   (10,616)    (12,680)    (4,854)
  Other current assets......................    (3,721)     (6,778)    (1,031)
  Accounts payable and other liabilities....       365       9,859     (4,195)
                                             ---------   ---------   --------
Net cash provided by operating activities...    18,791       3,281      7,986
                                             ---------   ---------   --------
Cash flows from investing activities:
  Payments for purchase of property, plant
   and equipment............................   (23,144)    (23,373)   (18,260)
  Net cash invested in acquisitions of
   businesses...............................   (52,254)   (104,312)   (10,857)
                                             ---------   ---------   --------
Net cash used for investing activities......   (75,398)   (127,685)   (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 of 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)
 
                                       27
<PAGE>
 
                     SUNRISE MEDICAL INC. AND SUBSIDIARIES
 
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (IN THOUSANDS)
 
<TABLE>   
<CAPTION>
                            COMMON STOCK                           FOREIGN
                          -----------------  ADDITIONAL           CURRENCY       TOTAL
                           NUMBER             PAID-IN   RETAINED TRANSLATION STOCKHOLDERS'
                          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
  Common share offering.    3,000     3,000     77,936      --         --        80,936
  Net income............      --        --         --    18,090        --        18,090
  Foreign currency
   translation
   adjustment...........      --        --         --       --      (5,595)      (5,595)
                           ------   -------   --------  -------    -------     --------
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 (restated).      --        --         --    21,809        --        21,809
  Foreign currency
   translation
   adjustment...........      --        --         --       --       2,151        2,151
                           ------   -------   --------  -------    -------     --------
Balance at July 1, 1994
 (restated).............   17,996    17,996    175,965   66,805     (1,227)     259,539
                           ------   -------   --------  -------    -------     --------
  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 (restated).      --        --         --    19,471        --        19,471
  Foreign currency
   translation
   adjustment...........      --        --         --       --       5,892        5,892
                           ------   -------   --------  -------    -------     --------
Balance at June 30, 1995
 (restated).............   18,597   $18,597   $189,955  $86,276    $ 4,665     $299,493
                           ======   =======   ========  =======    =======     ========
</TABLE>    
 
 
         (See accompanying notes to consolidated financial statements)
 
                                       28
<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 Inc. (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 support surfaces 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 original maturities 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 first-
in, first-out (FIFO) cost or market value. Inventories consist of the
following:
 
<TABLE>       
<CAPTION>
                                                                  JUNE
                                                                   30,   JULY 1,
                                                                  1995    1994
                                                                 ------- -------
      <S>                                                        <C>     <C>
      Raw material.............................................. $35,126 $26,353
      Work-in-progress..........................................   8,490   8,686
      Finished goods............................................  38,325  30,519
                                                                 ------- -------
      Total inventories......................................... $81,941 $65,558
                                                                 ======= =======
</TABLE>    
   
  If all inventories had been valued at FIFO cost, inventories would have been
approximately $84,195 and $67,160 for 1995 and 1994, respectively.     
 
PROPERTY, PLANT AND EQUIPMENT
 
  Property, plant and equipment are 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.
 
                                      29
<PAGE>
 
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.
 
REVENUE RECOGNITION
 
  The company recognizes revenue from product sales at the time of shipment
and provides an appropriate allowance for estimated returns and adjustments.
 
RESEARCH AND DEVELOPMENT COSTS
 
  Research and development costs relate to both present and future products
and are expensed in the year incurred.
 
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 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 earnings per share are not
materially different from primary amounts.     
 
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 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.
 
                                      30
<PAGE>
 
2. RESTATEMENT
   
  On October 26, 1995 the company issued a press release announcing that it
had commenced an internal investigation of its financial controls and
financial statements for previously reported periods to determine the nature
and extent of accounting practices at its Bio Clinic subsidiary that may have
been inconsistent with generally accepted accounting principles. On January 4,
1996 the company reported that it had determined, as a result of the
investigation, that net sales, operating income and assets at its Bio Clinic
Corporation 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. The restatement has resulted in a reduction of
previously reported consolidated net income of approximately 37% in fiscal
1995 and 16% in fiscal 1994. Adjustments for periods prior to fiscal 1994 were
not material, and will be reflected in operating results for the second
quarter of fiscal 1996. A comparison of certain amounts as previously reported
and as restated is presented below.     
 
<TABLE>   
<CAPTION>
                             YEAR ENDED JUNE 30, 1995    YEAR ENDED JULY 1, 1994
                             --------------------------- -----------------------
                             AS REPORTED    AS RESTATED  AS REPORTED AS RESTATED
                             ------------   ------------ ----------- -----------
<S>                          <C>            <C>          <C>         <C>
STATEMENT OF OPERATIONS:
  Net sales.................  $    603,978   $    601,927 $467,906    $466,942
  Corporate operating
   income...................  $     61,095   $     43,020 $ 48,679    $ 42,263
  Income before taxes.......  $     51,938   $     33,863 $ 42,584    $ 36,168
  Net income................  $     30,680   $     19,471 $ 25,857    $ 21,809
  Earnings per share........  $       1.63   $       1.03 $   1.41    $   1.19
BALANCE SHEET DATA:
  Working capital...........  $    135,732   $    125,091 $103,338    $101,479
  Total assets..............  $    619,058   $    597,909 $478,052    $471,667
  Stockholders' equity......  $    314,750   $    299,493 $263,587    $259,539
</TABLE>    
 
3. 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 bank credit facility. Corona manufactures and markets
hydraulic and electric beds and other furniture for the home care, nursing
home and hospital markets in France.     
 
  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............................................... $635,702 $518,985
      Net income.............................................. $ 20,726 $ 24,776
      Earnings per share...................................... $   1.09 $   1.32
</TABLE>    
 
                                      31
<PAGE>
 
  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 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
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 $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 subordinated notes of $0.3 million.
 
  All of these 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 was recognized as goodwill and is being amortized
over periods ranging from 20 to 40 years. The operating results of all
acquisitions are included in the consolidated results of operations from the
respective dates of acquisition.
 
4. 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>
            YEAR ENDED                            AMOUNT
            ----------                            -------
            <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>
 
5. 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>
 
 
                                      32
<PAGE>
 
   
  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 agreement was further amended in September 1995 (see Note 10).
    
  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. At June 30, 1995 the three-
month interbank offered rates were as follows: French francs--6.938%; U.S.
dollars--5.996%; and German marks--4.625%.
 
  The fair market value of these swap agreements is the amount the company
would be required to pay to terminate them, which is estimated to be $119 at
June 30, 1995. 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.
 
  The following table summarizes the company's interest rate swap agreements:
 
                         INTEREST RATE SWAP AGREEMENTS
 
<TABLE>     
<CAPTION>
   NOTIONAL                 U.S. DOLLAR SWAP
    AMOUNT      CURRENCY      AMOUNT    RATE        EFFECTIVE PERIOD
   --------     --------    ----------- ----        ----------------
   <S>        <C>           <C>         <C>   <C>
   150,000    French francs   $30,990** 7.14% April 1995-April 1997
   100,000    French francs   $20,660** 7.59% April 1997-April 2000
    30,000    U.S. dollars    $30,000   5.29% September 1995-September 1997
    30,000    U.S. dollars    $30,000   5.63% September 1995-September 2000
    60,000    U.S. dollars    $60,000   3.89% September 1993-September 1995
    40,000*   German marks    $28,940** 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.
   
**The U.S. dollar equivalent is based on exchange rates in effect at June 30,
1995.     
 
                                      33
<PAGE>
 
6. 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 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....................................  $ 4,635   $ 7,008  $ 7,259
        State......................................      587       811    1,228
        Foreign....................................    4,681     2,621    2,031
                                                     -------   -------  -------
                                                       9,903    10,440   10,518
                                                     -------   -------  -------
      Deferred:
        Federal....................................    3,327     2,708      368
        State......................................      936       957      516
        Foreign....................................      226       254      204
                                                     -------   -------  -------
                                                       4,489     3,919    1,088
                                                     -------   -------  -------
      Total........................................  $14,392   $14,359  $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.
 
  A reconciliation to the effective income tax rate from the federal statutory
rate follows:
 
<TABLE>     
<CAPTION>
                                                      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........................    4.2       3.7       1.6
   State income taxes, net of federal taxes........    2.9       3.1       3.8
   Tax-exempt interest.............................     --        --       (.4)
   Tax credits.....................................    (.9)     (1.1)      (.2)
   Foreign income taxes............................     .5        .2        --
   Excludable foreign sales corporation income.....    (.4)      (.3)      (.2)
   Other, net......................................    1.2       (.9)       .5
                                                      ----      ----      ----
     Effective income tax rate.....................   42.5%     39.7%     39.1%
                                                      ====      ====      ====
</TABLE>    
   
  Significant components of deferred income tax assets and liabilities at June
30, 1995 and at July 1, 1994 are shown below. The deferred tax asset is
included in other current assets in the consolidated balance sheet.     
 
<TABLE>       
<CAPTION>
                                                                  1995    1994
                                                                 ------  ------
      <S>                                                        <C>     <C>
      Deferred income tax assets:
        Allowance for doubtful accounts......................... $1,207  $  956
        Inventory reserves......................................  1,454   1,175
        Vacation accruals.......................................    753     749
        Other accrued expenses and valuation....................    673   2,067
        State and local taxes...................................    116     486
                                                                 ------  ------
                                                                  4,203   5,433
                                                                 ------  ------
      Deferred income tax liabilities:
        Accumulated depreciation and amortization...............  4,376   2,725
                                                                 ------  ------
      Net deferred income taxes................................. $ (173) $2,708
                                                                 ======  ======
</TABLE>    
 
 
                                      34
<PAGE>
 
   
  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 or at July 1, 1994.     
 
  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.................................... $  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>
 
7. 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 ten days after a person (an
"Acquiring Person") acquires 25% or more of the common stock, or ten 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 ten 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.
 
8. 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.
 
9. 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 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. The number of unissued shares of common stock reserved for future grants
under the 93 Plan increases annually by a number equal to 1.5% of the number
of shares of common stock issued and outstanding as of the last day of each
fiscal year. The 93 Plan expires in August 2003.     
 
                                      35
<PAGE>
 
  Under both the 83 Plan and the 93 Plan, the option price (exercise price) is
equal to the closing market price on the day prior to the grant date. 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 ten years and one day after the date of grant.
 
  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)
   Canceled................       (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-$30.00  $2.32-$24.00  $2.32-$17.25
                             ============  ============  ============
</TABLE>
   
  As of June 30, 1995 there were 354,964 unissued shares of common stock
reserved for future grants under the Plans.     
 
10. SUBSEQUENT EVENTS
   
  The company amended its bank credit facility as of September 29, 1995. Under
the amended agreement the company has a revolving credit commitment of $275
million that reduces to $255 million in January 1998, $235 million in 1999,
and $215 million in 2000, with a final maturity date of January 2001. Interest
will vary from prime rate to prime rate minus 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 of using 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 1/10% to 1/4% per year,
depending upon the company's leverage ratio, is payable on the unused portion
of the line. The credit facility requires the company to comply with certain
covenants such as maintenance of leverage ratio, tangible net worth, interest
coverage and certain restrictions on acquisitions.     
   
  As a result of the restatement of its 1995 and 1994 financial statements
(Note 2) and the unusual charges to be recorded in the second quarter of 1996
(see below), the company will not be in compliance with certain covenants
contained in its credit facility. On February 16, 1996 the bank group agreed
to a waiver of compliance with these covenants until February 28, 1997.
Management believes that appropriate amendments will be made to the credit
facility prior to the end of the company's 1996 fiscal year, 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 it is charged 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.     
   
  Following the company's October 1995 press release announcing that it had
commenced an internal investigation of its financial controls and financial
statements for previously reported periods (see Note 2), 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.
    
                                      36
<PAGE>
 
   
  The Securities and Exchange Commission (the "SEC") has entered a formal
order of private investigation into the circumstances underlying the
restatement of the company's 1995 and 1994 financial results. The company is
cooperating fully with the SEC in its investigation.     
   
  On January 4, 1996 the company announced that it expects 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 pending litigation;
the write-down of certain assets at Bio Clinic and Comfort Clinic to reflect
revised estimates of net asset realizations; immaterial Bio Clinic items
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.     
 
11. 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................................ $437,331  $358,259  $246,020
     Europe.......................................  164,596   108,683    73,176
                                                   --------  --------  --------
       Total...................................... $601,927  $466,942  $319,196
                                                   ========  ========  ========
   Corporate operating income
     North America................................ $ 24,277  $ 31,171  $ 26,402
     Europe.......................................   18,743    11,092     7,445
                                                   --------  --------  --------
       Total......................................   43,020    42,263    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............................ $ 33,863  $ 36,168  $ 29,696
                                                   ========  ========  ========
   Identifiable assets
     North America................................ $329,206  $320,054  $207,202
     Europe.......................................  268,703   151,613    76,829
                                                   --------  --------  --------
       Total...................................... $597,909  $471,667  $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.
 
                                      37
<PAGE>
 
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
   
  As stated in Note 2, the company has restated its annual consolidated
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 dates during those years, the company has
been unable to allocate accurately to individual quarters the full year
restatement adjustments for any financial statement items other than net sales.
The adjustments necessary to restate net sales were attributable to the fourth
quarter of each respective year. Accordingly, no quarterly financial data other
than net sales is included herein and previously reported quarterly results for
1995 and 1994 should be disregarded.     
 
<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 $165,824 $601,927
   1994
   Net sales....................... $ 99,862 $111,079 $119,997 $136,004 $466,942
</TABLE>    
 
                                    PART III
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
   
  Information regarding the directors of the company is included under the
caption "Election of Directors" in the company's Definitive Proxy Statement for
its next Annual Meeting of Stockholders as filed with the Securities and
Exchange Commission on October 5, 1995 and is incorporated herein by
reference./1/ Subsequent to that filing, Mr. Larry C. Buckelew resigned as an
officer and director of the company.     
   
  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 as filed with the Securities
and Exchange Commission on October 5, 1995 and is incorporated herein by
reference./1/     
 
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 as
filed with the Securities and Exchange Commission on October 5, 1995 and is
incorporated herein by reference./1/     
 
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 as filed with the Securities and Exchange
Commission on October 5, 1995 and is incorporated herein by reference./1/     
 
--------
   
/1/ The company's Annual Meeting of Stockholders, originally scheduled for
    November 7, 1995, has been rescheduled for April 30, 1996. A revised Proxy
    Statement will be filed with the Securities and Exchange Commission and
    mailed to stockholders on or about March 31, 1996.     
 
                                       38
<PAGE>
 
                                    PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
 
(A) INDEX TO FINANCIAL STATEMENTS
 
<TABLE>     
<CAPTION>
                                                                           PAGE
   (1) FINANCIAL STATEMENTS:                                               ----
   <S>                                                                     <C>
   Independent Auditors' Report...........................................  24
   Consolidated Balance Sheets as of June 30, 1995 and July 1, 1994.......  25
   Consolidated Statements of Operations for the years ended June 30,
    1995,
    July 1, 1994 and July 2, 1993.........................................  26
   Consolidated Statements of Cash Flows for the years ended June 30,
    1995,
    July 1, 1994 and July 2, 1993.........................................  27
   Consolidated Statements of Stockholders' Equity for the years ended
    June 30, 1995,
    July 1, 1994 and July 2, 1993.........................................  28
   Notes to Consolidated Financial Statements.............................  29
<CAPTION>
   (2) FINANCIAL STATEMENT SCHEDULES:
   <S>                                                                     <C>
   Schedule II -- Valuation and Qualifying Accounts for the years ended
    June 30, 1995,
    July 1, 1994 and July 2, 1993.........................................  40
</TABLE>    
 
  All other financial statement schedules have been omitted because they are
not required or are not applicable, or the information is otherwise included.
 
(B) REPORTS ON FORM 8-K
   
  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.
 
                                      39
<PAGE>
 
                                                                    SCHEDULE II
 
                     SUNRISE MEDICAL INC. AND SUBSIDIARIES
 
                       VALUATION AND QUALIFYING ACCOUNTS
        FISCAL YEARS ENDED JUNE 30, 1995, JULY 1, 1994 AND JULY 2, 1993
                                (IN THOUSANDS)
 
<TABLE>   
<CAPTION>
                                         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
Allowance 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 (RESTATED)
Allowance for doubtful
 receivables............   $3,017     $1,533    $  859(1)  $(1,036)(2)   $4,373
                           ======     ======    ======     =======       ======
Reserves for inventory
 obsolescence...........   $3,575     $1,326    $1,471(1)  $  (921)(3)   $5,451
                           ======     ======    ======     =======       ======
1995 (RESTATED)
Allowance for doubtful
 receivables............   $4,373     $2,825    $  748(1)  $(1,088)(2)   $6,858
                           ======     ======    ======     =======       ======
Reserves for inventory
 obsolescence...........   $5,451     $2,745    $  361(1)  $(1,083)(3)   $7,474
                           ======     ======    ======     =======       ======
</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.
 
                                      40
<PAGE>
 
                                  SIGNATURES
 
  Pursuant to the requirements of Section 13 or 15(d) 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.
 
 
                                          By: /s/ Ted N. Tarbet
                                            ___________________________________
                                                      Ted N. Tarbet
                                             Senior Vice President and Chief
                                                    Financial Officer
   
Date: February 20, 1996     
   
  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 February 20, 1996.     
 
<TABLE>   
<CAPTION>
             SIGNATURE                           TITLE                    DATE
             ---------                           -----                    ----
 
 
<S>                                  <C>                           <C>
/s/ Richard H. Chandler              Chairman and Chief Executive  February 20, 1996
____________________________________ Officer
  Richard H. Chandler                (principal executive
                                     officer)
 
/s/ Ted N. Tarbet                    Senior Vice President and     February 20, 1996
____________________________________ Chief Financial Officer
   Ted N. Tarbet                     (principal financial
                                     officer)
 
/s/ John M. Radak                    Vice President and            February 20, 1996
____________________________________ Controller
  John M. Radak                      (principal accounting
                                     officer)
 
/s/ J. R. Woodhull                   Director                      February 20, 1996
____________________________________
  J. R. Woodhull
 
 
/s/ Joseph Stemler                   Director                      February 20, 1996
____________________________________
  Joseph Stemler
 
/s/ Lee A. Ault III                  Director                      February 20, 1996
____________________________________
  Lee A. Ault III
</TABLE>    
 
                                      41
<PAGE>
 
<TABLE>   
<CAPTION>
             SIGNATURE                           TITLE                    DATE
             ---------                           -----                    ----
 
 
<S>                                  <C>                           <C>
/s/ Lloyd E. Cotsen                  Director                      February 20, 1996
____________________________________
  Lloyd E. Cotsen
 
 
/s/ Murray H. Hutchison              Director                      February 20, 1996
____________________________________
  Murray H. Hutchison
 
 
/s/ William L. Pierpoint             Director                      February 20, 1996
____________________________________
  William L. Pierpoint
 
 
/s/ Babette Heimbuch                 Director                      February 20, 1996
____________________________________
   Babette Heimbuch
</TABLE>    
 
 
                                       42
<PAGE>
 
                               INDEX OF EXHIBITS
 
<TABLE>   
<CAPTION>
                                                                     SEQUENTIAL
 EXHIBIT                                                                PAGE
 NUMBER                         DESCRIPTION                            NUMBER
 -------                        -----------                          ----------
 <C>     <S>                                                         <C>
   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."(b)
   3.3   Bylaws of the company.(a)
   3.4   Amendment to Article II, Section 2, of the company's
         Bylaws.(c)
   3.5   Amendment to Certificate of Incorporation of the company
         as to the number of authorized shares.(d)
   3.6   Amendment of Bylaws to increase the number of directors
         to eight.(e)
   3.7   Amendment of Bylaws to increase the number of directors
         to nine.(f)
   4.1   Shareholders' Rights Agreement dated April 24, 1990.(g)
  10.6   Amended and Restated Stock Option Plan for Key
         Associates.(h)(o)
  10.7   1993 Stock Option Plan.(i)(o)
  10.8   Management Incentive Bonus Plan.(a)(o)
  10.9   Special Bonus Plan.(j)(o)
  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.(k)
  10.11  Asset Purchase Agreement for the Purchase of Certain
         Assets of Jay Medical, Ltd.(l)
  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.(m)
  10.13  Second 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.
  21     List of Subsidiaries.(n)
  23     Consent of Independent Auditors.
  27     Amended Financial Data Schedule.
</TABLE>    
--------
(a) Incorporated herein by reference to the company's Registration Statement
    No. 2-86314.
(b) Incorporated herein by reference to the company's 1987 Definitive Proxy
    Statement.
(c) Incorporated herein by reference to the company's Form 10-Q for the quarter
    ended December 28, 1990.
(d) Incorporated herein by reference to the company's Form 10-Q for the quarter
    ended January 1, 1993.
(e) Incorporated herein by reference to the company's Form 10-Q for the quarter
    ended December 31, 1993.
(f) Incorporated herein by reference to the company's Form 10-K for the fiscal
    year ended July 1, 1994.
(g) Incorporated herein by reference to the company's Form 10-Q for the quarter
    ended March 30, 1990.
(h) Incorporated herein by reference to the company's 1990 Definitive Proxy
    Statement.
   
(i) Incorporated herein by reference to the company's 1993 Definitive Proxy
    Statement.     
(j) Incorporated herein by reference to the company's Form 10-K for the fiscal
    year ended July 3, 1992.
(k) Incorporated herein by reference to the company's Form 8-K dated June 29,
    1993.
(l) Incorporated herein by reference to the company's Form 8-K dated September
    16, 1994.
(m) Incorporated herein by reference to the company's Form 8-K dated April 7,
    1995.
(n) Incorporated herein by reference to the company's Form 10-K for the fiscal
    year ended June 30, 1995.
(o) Management contract or compensatory plan required to be filed as an exhibit
    pursuant to Item 14(c).
 
 
                                       43