================================================================================
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 June 25, 2000
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 June 25, 2000:
Common Stock, $.01 Par Value 19,491,216 Shares Outstanding
================================================================================
<PAGE>
SSI Surgical Services, Inc.
Index to Form 10-Q
Three Months and Six Months Ended June 25, 2000
Page
Part I Financial Information:
Condensed Consolidated Balance Sheets as of June 25, 2000
and December 26, 1999
Condensed Consolidated Statements of Operations for the three
months and six months ended June 25, 2000 and June 27, 1999 4
Condensed Consolidated Statements of Cash Flows for the three
months and six months ended June 25, 2000 and June 27, 1999 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 9
<PAGE>
SSI Surgical Services, Inc.
Condensed Consolidated Balance Sheets
(Dollars in Thousands)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 25,
2000 December 26,
(Unaudited) 1999
------------ ------------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 202 $ 254
Accounts receivable less allowance for doubtful accounts
of $496 and $407 6,414 7,470
Prepaid expenses and other assets 1,280 1,143
-------- --------
Total Current Assets 7,896 8,867
Property and equipment, net 20,344 19,231
Intangibles and other assets 5,407 5,589
-------- --------
Total Assets $ 33,647 $ 33,687
======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 3,570 $ 3,462
Current portion of obligations under capital leases 826 919
-------- --------
Total Current Liabilities 4,396 4,381
Obligations under capital leases 663 1,084
Payable to affiliates 14,999 13,750
-------- --------
Total Liabilities 20,058 19,215
Shareholders' equity:
Common Stock $ 195 $ 195
Additional paid-in capital 23,019 23,019
Accumulated deficit (9,625) (8,742)
-------- --------
Total Shareholders' equity 13,589 14,472
-------- --------
Total liabilities and shareholders' equity $ 33,647 $ 33,687
======== ========
</TABLE>
See Notes to Condensed Consolidated Statements.
3
<PAGE>
SSI Surgical Services, Inc.
Condensed Consolidated Statements of Operations
(Dollars in Thousands, except per share)
(Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------- ---------------------
June 25, June 27, June 25, June 27,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenues $ 7,983 $ 7,747 $ 15,682 $ 15,462
Cost of revenues 6,747 6,489 13,307 12,740
Selling, general and administrative 1,514 702 2,935 1,672
Interest 405 171 796 333
-------- -------- -------- --------
Total costs and expenses 8,666 7,362 17,038 14,745
Income (loss) before income taxes (683) 385 (1,356) 717
Income taxes (benefit) (238) 125 (473) 231
-------- -------- -------- --------
Net income (loss) $ (445) $ 260 $ (883) 486
-------- -------- -------- --------
Earnings (loss) per common share - basic $ (.02) $ .01 $ (.05) .02
-------- -------- -------- --------
Earnings (loss) per common share - diluted $ (.02) $ .01 $ (.05) .02
-------- -------- -------- --------
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
-------- -------- -------- --------
</TABLE>
See Notes to Condensed Consolidated Statements.
4
<PAGE>
SSI Surgical Services, Inc.
Condensed Consolidated Statements of Cash Flows
(Dollars in Thousands)
(Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
----------------------
June 25, June 27,
2000 1999
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (883) $ 486
Adjustments to reconcile net income to net cash
Provided by (used in) operating activities:
Depreciation and amortization 2,146 2,011
Changes in operating assets and liabilities:
Accounts receivable 1,056 (252)
Prepaid expenses and other assets (158) (381)
Accounts payable and accrued liabilities 108 714
------- -------
Net cash provided by operating activities 2,269 2,578
------- -------
Cash flows for investing activities:
Net purchase of property and equipment (3,056) (2,213)
------- -------
Net cash used by investing activities (3,056) (2,213)
------- -------
Cash flows from financing activities:
Repayments of long-term debt -- (129)
Repayments under capital lease obligations (514) (304)
Net borrowings from affiliates 1,249 21
------- -------
Net cash provided by financing activities 735 (412)
------- -------
Increase (decrease) in cash and cash equivalents (52) (47)
Cash and cash equivalents at beginning of period 254 57
------- -------
Cash and cash equivalents at end of period $ 202 $ 10
======= =======
</TABLE>
See Notes to Condensed Consolidated Statements.
5
<PAGE>
Notes to the Condensed Consolidated Financial Statements
NOTE 1
The accompanying unaudited interim 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 interim 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
interim 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 calculation of
earnings per share for the three and six months ended June 25, 2000 and June 27,
1999, because the effect would be antidilutive.
NOTE 3
Certain items in the 1999 financial statements have been reclassified to
conform with the 2000 presentation of the financial statements.
6
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
(Dollars in Thousands, except per share)
Results of Operations
Revenues for the three months ended June 25, 2000 increased by $236 to
$7,983 compared to $7,747 for the three months ended June 27, 1999. Revenues for
the six months ended June 25, 2000 increased by $220 to $15,682 compared to
$15,462 for the six months ended June 27, 1999. This increase is attributed to
additional revenues from new customers and increased revenues from existing
customers.
Gross profit, defined as revenues less cost of revenues, decreased to
$1,236 or 15.5% for the three months ended June 25, 2000 compared with $1,258 or
16.2% for the three months ended June 27, 1999. Gross profit decreased to $2,375
or 15.1% for the six months ended June 25, 2000 compared with $2,722 or 17.6%
for the six months ended June 27, 1999. The decline was due to an increase in
operating expenses. Contract pricing was not raised in an effort to maintain
market share.
Selling, general and administrative expenses increased by $812 to $1,514
for the three months ended June 25, 2000 compared to $702 for the three months
ended June 27, 1999. Selling, general and administrative expenses increased by
$1,263 to $2,935 for the six months ended June 25, 2000 compared to $1,672 for
the six months ended June 27, 1999. The increase was primarily the result of
investments in infrastructure, information systems and sales force development.
Interest expense increased by $234 to $405 for the three months ended June
25, 2000 compared to $171 for the three months ended June 27, 1999. Interest
expense increased by $463 to $796 for the six months ended June 25, 2000
compared to $333 for the six months ended June 27, 1999. This increase was the
result of increased borrowings from affiliates and an increase in average
interest rates to approximately 10.5% and 10.2% for the three and six months
ended June 25, 2000, respectively compared to approximately 8.0% for the three
and six months ended June 27, 1999.
Net loss for the three months ended June 25, 2000 was $445 compared to net
income of $260 for the three months ended June 27, 1999. Net loss for the six
months ended June 25, 2000 was $883 compared to net income of $486 for the six
months ended June 27, 1999. Basic and diluted earnings per share in the three
months ended June 25, 2000 represented a net loss per share of $0.02, compared
to a net earnings per share of $0.01 in the three months ended June 27, 1999.
Basic and diluted earnings per share in the six months ended June 25, 2000
represented a net loss per share of $0.05, compared to a net earnings per share
of $0.02 in the six months ended June 27, 1999.
Significant Management Changes
Effective July 28, 2000, the Company's President and Chief Executive
Officer, Michael D. Klein, resigned to pursue other interests. Effective August
4, 2000, Todd Riddell, formerly Executive Vice President and Chief Operating
Officer of the Company, was elected President and Chief Operating Officer of the
Company.
7
<PAGE>
Liquidity and Capital Resources
Current assets decreased $971 to $7,896 at June 25, 2000 from $8,867 at
December 26, 1999. The Company had working capital of $3,500 at June 25, 2000,
compared to working capital of $4,486 at December 26, 1999. The decrease in the
Company's current assets and working capital at June 25, 2000 compared to
December 26, 1999 was primarily the result of a reduction in accounts
receivable.
The Company continues to purchase surgical instruments and linen products
as required to support increases in business and adequately service existing
customers. In April 2000, the Company signed a ten-year lease for an
approximately 26,000 square foot property, for relocation of the McGaw Park,
Illinois facility. In May 2000, the Company signed a ten-year lease extension
for its Syosset, NY facility. Commitments under these operating leases aggregate
approximately $7,700. The Company also expects to invest approximately $1,700 in
leasehold improvements and equipment to relocate and expand the McGaw Park
facility, of which approximately $400 has been spent as of June 25, 2000.
Funding for these initiatives is expected to be provided by Teleflex,
Incorporated.
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 future working capital and capital
expenditure requirements. 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 relating to the sufficiency of funds for the Company's
future working capital requirements; the Company's expectation that future cash
flow will continue to be provided from operations; and the Company's present
belief that inflation will not have any significant impact on its business 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.
The Company's future results are subject to risks and uncertainties. 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 60% 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
8
<PAGE>
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.
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, 2000 SSI SURGICAL SERVICES, INC.
By: /s/ Todd Riddell
-------------------------------------
Todd Riddell
President and Chief Operating Officer
By: /s/ Paul A. D'Alesio
-------------------------------------
Paul A. D'Alesio
Treasurer and Chief Financial Officer
9
