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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended July 1, 2001
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 number 2-85008-NY
SSI Surgical Services, Inc.
(Exact name of registrant as specified in its charter)
New York 11-2621408
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5776 Hoffner Avenue, Suite 200, Orlando Florida 32822
(Address of principal executive offices) (Zip Code)
(407) 249-1946
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the 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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. |X| Yes |_| No
Number of shares outstanding of each of the issuer's classes of common
stock, as of July 24, 2001:
Common Stock, $.01 Par Value 19,491,216 Shares Outstanding
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SSI Surgical Services, Inc.
Index to Form 10-Q
Three Months and Six Months Ended July 1, 2001
Page
Part I Financial Information:
Condensed Consolidated Balance Sheets as of July 1, 2001
and December 31, 2000 3
Condensed Consolidated Statements of Operations for the three
months and six months ended July 1, 2001 and June 25, 2000 4
Condensed Consolidated Statements of Cash Flows for the six
months ended July 1, 2001 5
Notes to the Condensed Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial Condition
and Results of Operations 7-8
Part II Other Information:
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
SSI Surgical Services, Inc.
Condensed Consolidated Balance Sheets
(Dollars in Thousands)
--------------------------------------------------------------------------------
July 01,
2001 December 31,
(Unaudited) 2000
------------ ------------
Assets
Current Assets:
Cash and cash equivalents $ 186 $ 71
Accounts receivable less allowance for doubtful
accounts of $508 and $470 7,639 7,831
Prepaid expenses and other assets 1,586 1,512
------------ ------------
Total current assets 9,411 9,414
Property and equipment, net 23,025 22,795
Intangibles and other assets 4,998 5,201
------------ ------------
Total assets $ 37,434 $ 37,410
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 2,681 $ 3,481
Obligations under capital leases 449 465
------------ ------------
Total current liabilities 3,130 3,946
Obligations under capital leases 188 474
Payable to affiliates 22,346 20,590
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Total liabilities 25,664 25,010
Shareholders' equity:
Common Stock $ 195 $ 195
Additional paid-in capital 23,019 23,019
Accumulated deficit (11,444) (10,814)
------------ ------------
Total shareholders' equity 11,770 12,400
------------ ------------
Total liabilities and shareholders' equity $ 37,434 $ 37,410
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See Notes to Condensed Consolidated Statements.
3
SSI Surgical Services, Inc.
Condensed Consolidated Statements of Operations
(Dollars in Thousands, except per share)
(Unaudited)
--------------------------------------------------------------------------------
Three Months Ended Six Months Ended
------------------ ----------------
July 1, June 25, July 1, June 25,
2001 2000 2001 2000
-------- -------- -------- --------
Net revenues $ 8,687 $ 7,983 $ 17,147 $ 15,682
Cost of revenues 6,940 6,297 13,711 12,425
-------- -------- -------- --------
Gross profit 1,747 1,686 3,436 3,257
Distribution Expenses 415 450 835 882
Selling, general and administrative 1,329 1,514 2,623 2,935
-------- -------- -------- --------
Income (loss) from operations 3 (278) (22) (560)
Interest 472 405 1,021 796
-------- -------- -------- --------
Income (loss) before income taxes (469) (683) (1,043) (1,356)
Income taxes (benefit) (189) (238) (413) (473)
-------- -------- -------- --------
Net income (loss) $ (280) $ (445) $ (630) (883)
======== ======== ======== ========
Earnings (loss) per common share - basic $ (.01) $ (.02) $ (.03) (.05)
======== ======== ======== ========
Earnings (loss) per common share - diluted $ (.01) $ (.02) $ (.03) (.05)
======== ======== ======== ========
Weighted average common shares 19,491 19,491 19,491 19,491
======== ======== ======== ========
Weighted average dilutive common shares 19,491 19,491 19,491 19,491
======== ======== ======== ========
See Notes to Condensed Consolidated Statements.
4
SSI Surgical Services, Inc.
Condensed Consolidated Statements of Cash Flows
(Dollars in Thousands)
(Unaudited)
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Six Months Ended
----------------
July 1, June 25,
2001 2000
-------- --------
Cash flows from operating activities:
Net income (loss) $ (630) $ (883)
Adjustments to reconcile net income to net cash
Provided by (used in) operating activities:
Depreciation and amortization 2,663 2,146
Doubtful debt expense 60 60
Changes in operating assets and liabilities:
Accounts receivable 132 996
Prepaid expenses and other assets (74) (158)
Accounts payable and accrued liabilities (800) 108
-------- --------
Net cash provided by operating activities 1,351 2,269
-------- --------
Cash flows for investing activities:
Net purchase of property and equipment (2,690) (3,056)
-------- --------
Net cash used by investing activities (2,690) (3,056)
-------- --------
Cash flows from financing activities:
Repayments under capital lease obligations (302) (514)
Net borrowings from affiliates 1,756 1,249
-------- --------
Net cash provided by financing activities 1,454 735
-------- --------
Increase (decrease) in cash and cash equivalents 115 (52)
Cash and cash equivalents at beginning of period 71 254
-------- --------
Cash and cash equivalents at end of period $ 186 $ 202
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See Notes to Condensed Consolidated Statements.
5
SSI Surgical Services, Inc.
Notes to the Condensed Consolidated Financial Statements
NOTE 1
The accompanying unaudited condensed consolidated financial statements
have been prepared pursuant to the rules and regulations for reporting on Form
10-Q. Accordingly, certain information and disclosures required by generally
accepted accounting principles for complete financial statements are not
included herein. The condensed statements should be read in conjunction with the
financial statements and notes thereto included in the Company's latest Form
10K. In the Company's opinion, all adjustments necessary for a fair presentation
of these condensed statements have been included and are of a normal and
recurring nature.
NOTE 2
Basic earnings per share is computed by dividing net income by the
weighted average number of common shares outstanding during the period. Diluted
earnings per share is computed in a similar manner except that the weighted
average number of common shares is increased for dilutive securities.
Potentially dilutive securities have been excluded from the computation of
diluted earnings per share for the three and six months ended July 1, 2001 and
June 25, 2000, since the result would be antidilutive.
NOTE 3
Certain items in the 2000 financial statements have been reclassified to
conform with the 2001 presentation of the financial statements.
NOTE 4
Effective April 12, 2001, the Company entered into a Sales and Marketing
Agreement with Pilling Surgical (Pilling), a wholly-owned subsidiary of Teleflex
Incorporated (Teleflex) its majority shareholder. Under the terms of the
agreement, Pilling is granted the sole and exclusive right to market the
Company's comprehensive line of surgical support services to hospitals and
ambulatory centers throughout the United States. The term of the agreement is
for three years ending on April 30, 2004, and provides for early termination in
the event billed sales of services from Pilling generated contracts during any
calendar year do not exceed amounts specified in the agreement. During each
calander year, the Company will pay Pilling a fee at the rate of 19.2% on billed
sales from contracts signed in that calendar year. In the six months ended July
1, 2001, Pilling earned fees totalling $30,576.
6
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
Revenues increased $704,000 or 8.8%, to $8,687,000 for the three
months ended July 1, 2001 compared to $7,983,000 for the three months ended June
25, 2000. Revenues increased $1,465,000 or 9.3%, to $17,147,000 for the six
months ended July 1, 2001 compared to $15,682,000 for the six months ended June
25, 2000. This increase is attributed to additional revenues from new customers
and increased revenues from existing customers.
Gross profit increased to $1,747,000 or 20.1% for the three months ended
July 1, 2001 compared with $1,686,000 or 21.1% for the three months ended June
25, 2000. Gross profit increased to $3,436,000 or 20.0% for the six months ended
July 1, 2001 compared with $3,257,000 or 20.8% for the three months ended June
25, 2000. This increase is consistent with the increase in revenues during the
period.
Distribution costs decreased to $415,000 or 4.8% for the three months
ended July 1, 2001 compared with $450,000 or 5.6% for the three months ended
June 25, 2000. Distribution costs decreased to $835,000 or 4.9% for the six
months ended July 1, 2001 compared with $882,000 or 5.6% for the three months
ended June 25, 2000. The decrease in distribution costs from reprocessing
facilities resulted from a reduction in the use of third party transport
services.
Selling, general and administrative expenses decreased by $185,000 to
$1,329,000 for the three months ended July 1, 2001 compared to $1,514,000 for
the three months ended June 25, 2000. Selling, general and administrative
expenses decreased by $312,000 to $2,623,000 for the six months ended July 1,
2001 compared to $2,935,000 for the six months ended June 25, 2000. The decrease
was primarily the result of personnel reassigned to operations and a reduction
in commissioned based selling expense relating to the Pilling Sales and
Marketing Agreement.
Interest expense increased by $67,000 to $472,000 for the three months
ended July 1, 2001 compared to $405,000 for the three months ended June 25,
2000. Interest expense increased by $225,000 to $1,021,000 for the six months
ended July 1, 2001 compared to $796,000 for the six months ended June 25, 2000.
This increase was the result of increased borrowings from affiliates offset by
lower interest rates.
Net loss for the three months ended July 1, 2001 was $280,000 compared to
net loss of $445,000 for the three months ended June 25, 2000. Net loss for the
six months ended July 1, 2001 was $630,000 compared to net loss of $883,000 for
the six months ended June 25, 2000. Basic and diluted earnings per share in the
three months ended July 1, 2001 represented a net loss per share of $.01,
compared to a net loss per share of $.02 in the three months ended June 25,
2000. Basic and diluted earnings per share in the six months ended July 1, 2001
represented a net loss per share of $.03, compared to a net loss per share of
$.05 in the six months ended June 25, 2000.
7
Liquidity and Capital Resources
The Company generated cash flows from operations of $1,351,000 in the six
months ended July 1, 2001 compared to $2,269,000 in the six months ended June
25, 2000. This decrease in cash flows compared to prior year was primarily the
result of an increased collection effort during the first quarter of 2000. This
successful effort reduced customer receivables to a more normal level where it
has remained.
Capital expenditures totaled $2,690,000 in the six months ended July 1,
2001 compared with $3,056,000 in the six months ended June 25, 2000. These
purchases were principally surgical instruments and linen products made to
support the Company's new and existing sales contracts.
The Company plans to purchase additional surgical instruments and linens,
as and if required to support the Company's growth objectives. The Company
believes that additional borrowing capacity under the existing loan agreement
with Teleflex Incorporated (Teleflex) and cash flows from operating activities
will provide support for these expenditures.
The Company had $637,000 in obligations under capital leases for equipment
and surgical instruments at July 1, 2001. In addition, the Company had
borrowings of $22,158,000 outstanding at July 1, 2001 under a $27,500,000
unsecured revolving loan agreement with Teleflex, its majority shareholder. The
outstanding principal on this credit facility is due and payable on April 30,
2003. Interest under this agreement is payable at the prevailing Prime rate of
PNC Bank, plus 1.25 percent.
The Company believes that the anticipated future cash flow from
operations, along with its cash on hand and available funding from its major
shareholder will be sufficient to meet working capital requirements during 2001.
There can be no assurance, however, that the Company will not require additional
working capital and, if it does require such capital, that such capital will be
available to the Company on acceptable terms, if at all.
Certain Factors That May Affect Future Results
From time to time, information provided by the Company, statements made by
its employees or information included in its filings with the Securities
Exchange Commission (including this Form 10-Q) may contain statements which are
not historical facts, so-called "forward-looking statements," which involve
risks and uncertainties. Forward-looking statements are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995;
in particular, statements made relating to the suitability of the Company's
facilities and equipment for future operations and the availability of
additional facilities and equipment in the future; and the sufficiency of funds
for the Company's future working capital requirements during the next twelve
months may be forward looking statements. The Company's actual future results
may differ significantly from those stated in any forward-looking statements.
Factors that may cause such differences include, but are not limited to, the
factors discussed below. Each of these factors, and others, are discussed from
time to time in the Company's filings with the Securities and Exchange
Commission.
8
The Company's future results are subject to risks and uncertainties. The
Company has operated at a loss or small profit for its entire history and there
can be no assurance of its ever achieving consistent profitability. The Company
may require additional working capital in the future and there can be no
assurance that such working capital will be available on acceptable terms, if at
all. The failure of the Company to continue to compete effectively with existing
or new competitors could result in price erosion, decreased margins and
decreased revenues, any or all of which could have a material adverse effect on
the Company's business, results of operations and financial condition.
Approximately 65% of the Company's healthcare provider customers are currently
concentrated in the Northeast Corridor. Any factors affecting this market
generally could have a material adverse effect on the Company's business,
results of operations and financial condition. The Company is subject to
government regulation in certain aspects of its operations. Changes in such
regulations could have a material adverse effect on the Company's business,
results of operations and financial condition.
Future results of the Company will depend significantly on its ability to
successfully convince hospitals and other healthcare providers to utilize the
Company's instrument and linen sterilization services, endoscopic services and
sterile processing department management services as opposed to their own
resources. Hospitals may resist this change for a number of reasons, including
the preferences of hospital staffs which may wish to preserve their existing
staffing, labor unions which may resist any staffing reductions and the ongoing
consolidation of hospitals which may impact the willingness of hospital
administrators to make operational decisions on a timely basis and which may
affect a hospital's decision to outsource sterile processing services as opposed
to retaining one or more of the consolidated hospital group's central
sterilization facilities to provide services for the entire group.
The Company's quarterly and annual operating results are affected by a
wide variety of factors that could materially and adversely affect revenues and
profitability, including: competitive pressures on selling prices and margins;
the timing and cancellation of customer orders; the lengthy sales cycle of the
Company's services to healthcare organizations; the Company's ability to
maintain state-of-the-art sterilization facilities and the corresponding timing
and amount of capital expenditures, particularly if the Company executes its
plan for growth; and the introduction of new services by the Company's
competitors. As a result of the foregoing and other factors, the Company may
experience material fluctuations in future operating results on a quarterly or
annual basis which could materially and adversely effect its business, operating
results and stock price.
Item 6. Exhibits and Reports on Form 8-K
(a) Reports on form 8-K.
No reports on form 8-K were filed during the quarter.
9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
August 8, 2001 SSI SURGICAL SERVICES, INC.
By: /s/ Todd Riddell
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Todd Riddell
President and Chief Executive Officer
By: /s/ Paul A. D'Alesio
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Paul A. D'Alesio
Treasurer and Chief Financial Officer
10