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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 March 31, 2002
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 April 23, 2002:
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 Ended March 31, 2002
Page
Part I Financial Information:
Condensed Consolidated Balance Sheets as of March 31, 2002
and December 30, 2001 3
Condensed Consolidated Statements of Operations for the three
months ended March 31, 2002 and April 1, 2001 4
Condensed Consolidated Statements of Cash Flows for the three
months ended March 31, 2002 and April 1, 2001 5
Notes to the Condensed Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial Condition
and Results of Operations 7-9
Part II Other Information:
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 9
SSI Surgical Services, Inc.
Condensed Consolidated Balance Sheets
(Dollars in Thousands)
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March 31,
2002 December 30,
(Unaudited) 2001
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Assets
Current Assets:
Cash and cash equivalents $ 89 $ 72
Accounts receivable less allowance for doubtful
accounts of $566 and $567 7,087 6,794
Prepaid expenses and other assets 1,561 1,416
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Total current assets 8,737 8,282
Property and equipment, net 24,480 23,412
Goodwill 4,637 4,637
Other assets 131 149
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Total assets $ 37,985 $ 36,480
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Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 2,527 $ 2,521
Obligations under capital leases 225 346
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Total current liabilities 2,752 2,867
Obligations under capital leases 11 30
Payable to affiliates 25,373 23,308
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Total liabilities 28,136 26,205
Shareholders' equity:
Common Stock $ 195 $ 195
Additional paid-in capital 23,019 23,019
Accumulated deficit (13,365) (12,939)
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Total shareholders' equity 9,849 10,275
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Total liabilities and shareholders' equity $ 37,985 $ 36,480
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See Notes to Condensed Consolidated Statements.
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SSI Surgical Services, Inc.
Condensed Consolidated Statements of Operations
(Dollars in Thousands, except per share)
(Unaudited)
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Three Months Ended
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March 31, April 1,
2002 2001
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Net revenues $ 8,685 $ 8,460
Cost of revenues 7,551 6,771
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Gross profit 1,134 1,689
Distribution Expenses 386 420
Selling, general and administrative 1,078 1,294
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Income (loss) from operations (330) (25)
Interest 368 549
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Income (loss) before income taxes (698) (574)
Income taxes (benefit) (272) (224)
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Net income (loss) $ (426) $ (350)
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Earnings (loss) per common share - basic $ (.02) $ (.02)
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Earnings (loss) per common share - diluted $ (.02) $ (.02)
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Weighted average common shares 19,491,216 19,491,216
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Weighted average dilutive common shares 19,491,216 19,491,216
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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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Three Months Ended
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March 31, April 1,
2002 2001
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Cash flows from operating activities:
Net loss $ (426) $ (350)
Adjustments to reconcile net income to net cash
Provided by (used in) operating activities:
Depreciation and amortization 1,283 1,320
Provision for doubtful accounts - 30
Changes in operating assets and liabilities:
Accounts receivable (293) 135
Prepaid expenses and other assets (127) 36
Accounts payable and accrued liabilities 50 (760)
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Net cash provided by operating activities 487 411
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Cash flows for investing activities:
Net purchase of property and equipment (2,351) (1,343)
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Net cash used by investing activities (2,351) (1,343)
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Cash flows from financing activities:
Repayments under capital lease obligations (140) (160)
Net borrowings from affiliates 2,021 1,406
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Net cash provided by financing activities 1,881 1,246
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Increase in cash and cash equivalents 17 314
Cash and cash equivalents at beginning of period 72 71
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Cash and cash equivalents at end of period $ 89 $ 385
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See Notes to Condensed Consolidated Statements.
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SSI Surgical Services, Inc.
Notes to the Condensed Consolidated Financial Statements
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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 latest Form 10K of SSI Surgical
Services, Inc. (the "Company"). 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 months ended March 31, 2002 and April 1, 2001, since the
result would be antidilutive.
NOTE 3
On December 31, 2001, the company adopted Statement of Financial Acounting
Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets", which requires
that goodwill and indefinite-lived intangible assets no longer be amortized:
amortization expense of $406,000 (pretax) and $248,000 (after-tax) was recorded
in the first quarter of 2001 for such assets.
A reconciliation of reported net income to adjusted net income and adjusted
earnings per share amounts for the periods ended March 31, 2002 and April 1,
2001 are as follows:
Three Months Ended
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March 31, April 1,
2002 2001
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Reported net income (loss) $ (426) $ (350)
Add back: Goodwill amortization - 248
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Adjusted net income (loss) $ (426) (102)
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Reported Basic and Diluted
Earnings (loss) per share $ (.02) $ (.02)
Add back: Goodwill amortization - .01
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$ (.02) $ (.01)
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Management's Discussion and Analysis of Financial Condition and Results of
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Operations
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Results of Operations
Revenues increased $225,000 or 2.7%, to $8,685,000 for the three months
ended March 31, 2002, compared to $8,460,000 for the three months ended April 1,
2001. This increase is attributed to additional revenues from new endosopic
services customers.
Gross profit decreased to $1,134,000 or 13.1% for the three months
ended March 31, 2002 compared with $1,689,000 or 20.0% for the three months
ended April 1, 2001. This decrease is attributed to a volume decline at the
offsite reprocessing facilities and additional hiring and training of operations
personnel to service new endoscopic contracts.
Distribution costs decreased to $386,000 or 4.4% for the three months
ended March 31, 2002 compared with $420,000 or 5.0% for the three months ended
April 1, 2001. 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 $216,000 to
$1,078,000 for the three months ended March 31, 2002 compared to $1,294,000 for
the three months ended April 1, 2001. The decrease was primarily the result of
goodwill amortization in 2001 of $101,000.
Interest expense decreased by $181,000 to $368,000 for the three months
ended March 31, 2002 compared to $549,000 for the three months ended April 1,
2001. This decrease was the result of increased borrowings from affiliates
offset by lower interest rates.
Net loss for the three months ended March 31, 2002 was $426,000
compared to net loss of $350,000 for the three months ended April 1, 2001 Basic
and diluted loss per share in the three months ended March 31, 2002 and April 1,
2001 was $.02.
Liquidity and Capital Resources
The Company generated cash flows from operations of $487,000 in the
three months ended March 31, 2002 compared to $411,000 in the three months ended
April 1, 2001. This increase in cash flows compared to prior year was primarily
the result of a reduction in the rate of working capital growth in relation to
2001.
Capital expenditures totaled $2,351,000 in the three months ended March
31, 2002 compared with $1,343,000 in the three months ended April 1, 2001. These
purchases were principally surgical instruments, video equipment and linen
products made to support the Company's new and existing sales contracts.
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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 $236,000 in obligations under capital leases for
equipment and surgical instruments at March 31, 2002. In addition, the Company
had borrowings of $25,210,000 outstanding at March 31, 2002 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 July 31,
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 2002.
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 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.
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. 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
64% 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.
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
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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.
Item 6. Exhibits and Reports on Form 8-K
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(a) Reports on form 8-K.
No reports on form 8-K were filed during the quarter.
SIGNATURES
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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.
May 4, 2002 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
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