================================================================================
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 September 24, 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 October 30, 2000:
Common Stock, $.01 Par Value 19,491,216 Shares Outstanding
================================================================================
<PAGE>
SSI Surgical Services, Inc.
Index to Form 10-Q
Three Months and Nine Months Ended September 24, 2000
Page
Part I. Financial Information:
Condensed Consolidated Balance Sheets as of September 24, 2000
and December 26, 1999 3
Condensed Consolidated Statements of Operations for the three
months and nine months ended September 24, 2000
and September 26, 1999 4
Condensed Consolidated Statements of Cash Flows for the nine
months ended September 24, 2000 and September 26, 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)
--------------------------------------------------------------------------------
September 24,
2000 December 26,
(Unaudited) 1999
------------- ------------
Assets
Current Assets:
Cash and cash equivalents $ 98 $ 254
Accounts receivable less allowance for
doubtful accounts of $442 and $407 7,703 7,470
Prepaid expenses and other assets 1,414 1,143
-------- --------
Total Current Assets 9,215 8,867
Property and equipment, net 21,972 19,231
Intangibles and other assets 5,145 5,589
-------- --------
Total Assets $ 36,332 $ 33,687
======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 2,882 $ 3,462
Current portion of obligations under
capital leases 725 919
-------- --------
Total Current Liabilities 3,607 4,381
Obligations under capital leases 504 1,084
Payable to affiliates 19,206 13,750
-------- --------
Total Liabilities 23,317 19,215
Shareholders' equity:
Common Stock $ 195 $ 195
Additional paid-in capital 23,019 23,019
Accumulated deficit (10,199) (8,742)
-------- --------
Total Shareholders' equity 13,015 14,472
-------- --------
Total liabilities and shareholders' equity $ 36,332 $ 33,687
======== ========
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 Nine Months Ended
---------------------------- ----------------------------
September 24, September 26, September 24, September 26,
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net revenues $ 7,741 $ 7,518 $ 23,423 $ 22,980
Cost of revenues 6,510 6,397 19,817 19,137
Selling, general and
administrative 1,634 936 4,569 2,608
Interest 487 283 1,283 616
-------- -------- -------- --------
Total costs and expenses 8,631 7,616 25,669 22,361
Income (loss) before income
taxes (890) (98) (2,246) 619
Income taxes (benefit) (316) (32) (789) 199
-------- -------- -------- --------
Net income (loss) $ (574) $ (66) $ (1,457) 420
======== ======== ======== ========
Earnings (loss) per
common share - basic $ (.03) $ -- $ (.07) .02
======== ======== ======== ========
Earnings (loss) per
common share - diluted $ (.03) $ -- $ (.07) .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>
Nine Months Ended
----------------------------
September 24, September 24,
2000 1999
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(1,457) $ 420
Adjustments to reconcile net income to net cash
Provided by (used in) operating activities:
Depreciation and amortization 3,099 2,784
Changes in operating assets and liabilities:
Accounts receivable (233) (1,625)
Prepaid expenses and other assets (131) (869)
Accounts payable and accrued liabilities (580) 354
------- -------
Net cash provided by operating activities 698 1,064
------- -------
Cash flows for investing activities:
Net purchase of property and equipment (5,536) (3,503)
------- -------
Net cash used by investing activities (5,536) (3,503)
------- -------
Cash flows from financing activities:
Repayments of long-term debt -- (347)
Repayments under capital lease obligations (774) (648)
Net borrowings from affiliates 5,456 3,509
------- -------
Net cash provided by financing activities 4,682 2,514
------- -------
Increase (decrease) in cash and cash equivalents (156) 75
Cash and cash equivalents at beginning of period 254 57
------- -------
Cash and cash equivalents at end of period $ 98 $ 132
======= =======
</TABLE>
See Notes to Condensed Consolidated Statements.
5
<PAGE>
SSI Surgical Services, Inc.
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 nine months ended September 24, 2000 and
September 26, 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 September 24, 2000 increased by $223
to $7,741 compared to $7,518 for the three months ended September 26, 1999.
Revenues for the nine months ended September 24, 2000 increased by $443 to
$23,423 compared to $22,980 for the nine months ended September 26, 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, increased to
$1,231 or 15.9% for the three months ended September 24, 2000 compared with
$1,121 or 14.9% for the three months ended September 26, 1999. Gross profit
decreased to $3,606 or 15.4% for the nine months ended September 24, 2000
compared with $3,843 or 16.7% for the nine months ended September 26, 1999. The
decline in the nine months 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 $698 to $1,634
for the three months ended September 24, 2000 compared to $936 for the three
months ended September 26, 1999. Selling, general and administrative expenses
increased by $1,961 to $4,569 for the nine months ended September 24, 2000
compared to $2,608 for the nine months ended September 26, 1999. The increase
was primarily the result of investments in infrastructure and sales force
development.
Interest expense increased by $204 to $487 for the three months ended
September 24, 2000 compared to $283 for the three months ended September 26,
1999. Interest expense increased by $667 to $1,283 for the nine months ended
September 24, 2000 compared to $616 for the nine months ended September 26,
1999. This increase was the result of increased borrowings from affiliates and
an increase in average interest rates to approximately 10.75% and 10.4% for the
three and nine months ended September 24, 2000, respectively compared to
approximately 8.0% for the three and nine months ended September 26, 1999.
Net loss for the three months ended September 24, 2000 was $574 compared
to net loss of $66 for the three months ended September 26, 1999. Net loss for
the nine months ended September 24, 2000 was $1,457 compared to net income of
$420 for the nine months ended September 26, 1999. Basic and diluted earnings
per share in the three months ended September 24, 2000 represented a net loss
per share of $.03, compared to net earnings per share of nil in the three months
ended September 26, 1999. Basic and diluted earnings per share in the nine
months ended September 24, 2000 represented a net loss per share of $.07,
compared to net earnings per share of $.02 in the nine months ended September
26, 1999.
Liquidity and Capital Resources
Current assets increased $348 to $9,215 at September 24, 2000 from $8,867
at December 26, 1999, due primarily to higher accounts receivable and prepaid
expenses, partially offset by lower cash. The Company had working capital of
$5,608 at September 24, 2000, compared to working capital of $4,486 at December
26, 1999.
7
<PAGE>
The increase in the Company's working capital at September 24, 2000 compared to
December 26, 1999 was the result of the increase in current assets and a
reduction in accounts payable and accrued expenses.
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. The Company has invested approximately $1,700 in leasehold
improvements and equipment to complete the relocation and expansion of this
facility.
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 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
8
<PAGE>
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.
November 7, 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
