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Annual Report. SRI/Surgical Express Matthew Simmons ACG2021 SECTION 004. Executive Summary.
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Annual Report SRI/Surgical ExpressMatthew SimmonsACG2021 SECTION 004
Executive Summary SRI/Surgical Express is a company that is on the rise. SRI provides reusable products such as sterile gowns and instruments to the medical industry. Once a hospital uses SRI’s product, SRI picks the product up from the hospital, sterilizes it and then ships it back to the hospital. It offers this process with both sterile gowns and sterile instruments. In the past most of SRI’s revenue has come from its reusable gowns. Now they are putting more emphasis on selling reusable medical instruments. Less space is needed to sterilize and package medical instruments therefore the overhead is lower. Because of this there is more profit. If SRI can sell more reusable instruments they will be a good company to stand behind and invest in. In the last two years SRI/Surgical Express stock has stayed in the range of $5 to $10 per share. SRI is not a highly traded stock. On average, around 1000 shares change hands in a day. Four years ago, SRI’s stock was as high as $45 per share. The reason it is much lower now is because four years ago the company was overvalued. Hopefully in the next few years by increasing sales in instruments, SRI will be able to get its price back to where it was four years ago. 2003 Annual Report
Part A. Introduction • Chief Executive Officer Joseph Largey resigned his position as CEO. The responsibilities will be resumed by the Executive Committee of SRI’s Board of Directors while it completes a search for a successor. The Executive Committee consists of James T. Boosales, Charles T. Orsatti, and N. John Simmons, Jr. Mr. Orsatti has been appointed chair of the Executive Committee. • The home office is located in Tampa Florida • The latest fiscal year ended December 31, 2003. • SRI provides central processing of reusable sterile gowns and instruments and supplies chain management services to hospitals and surgery centers across the United States. • SRI likes to serve customers that are within a “half a day of driving from one of their facilities.” Their facilities are located in Baltimore, Chattanooga, Cincinnati, Dallas, Detroit, Houston, Los Angeles, Raleigh, Salt Lake City, Stockton, and Tampa.
Part A. Audit Report • Ernst & Young LLP are the independent auditors • Ernst & Young confirms that the information in the financial statements is materially accurate. The results of operations and cash flows conform to the accounting principles generally accepted in the United States.
Part A. Stock Market Information • At the end of trading on October 29, 2004 SRI’s stock was priced at $5.94 per share. • From the period of October 29, 2003 to October 29, 2004, SRI’s stock sold at a high of $8.99 and a low of $5.00 per share. • SRI has never declared or paid cash dividends on their common stock and they do not anticipate paying dividends on their common stock in the foreseeable future. Additionally, financial covenants in their credit facility prohibit the payment of cash dividends. • This information is included in the Annual Report dated December 31, 2003. • I believe that you should buy this stock. Working on expanding the sale of instruments instead of reusable gowns will create much more profit from their earned revenue. If they implement this plan of selling more instruments I believe their stock price will increase.
Part B. Industry Situation and Company Plans The medical gown industry is leaning more towards disposable gowns everyday because they are much cheaper than the reusable gowns SRI offers. The reason SRI still has most of their reusable gown customers are because physicians and nurses feel that the reusable gowns that SRI offers are much more comfortable and safer than disposable gowns. But because disposable gowns are so much cheaper nowadays, it is harder to gain new customers so SRI is beginning to focus their attention else ware in order to expand their business. According to CFO Charlie Pope, “SRI’s future is in reusable instruments and surgery kits. Aesculap, a high quality instrument manufacturer, is partnered with SRI in creating reusable instrument kits for specific surgeries. Aesculap supplies the instruments to SRI and SRI sterilizes the instruments and ships them out to be used for certain procedures at hospitals. In return, SRI pays Aesculap a fee for using their instruments. “The reusable instrument business has much higher margins than reusable the gown business” says Chairman of the Board, N. John Simmons Jr. The reusable instrument market is very small. If SRI can build a good sales team and sell the reusable instruments, I believe this business will become much more lucrative.
Part C. Income Statement The format is most like a multistep format The cost of revenues increased from 2002 to 2003. The income from operations decreased from $4,821,000 to $730,000 from 2002 to 2003 . Due to competition. I believe the companies stock price at this time is a bargain because its near its low and the instrument program should generate future profits.
Part C. Balance Sheet Total assets decreased from 2002 to 2003 and total liabilities also decreased from 2002 to 2003. SRI used cash from operations to reduce its credit line.
Part C. Statement of Cash Flows SRI’s cash flows from operations are much more than net income for the last two years. For the last two years, SRI’s revenues have been flat. They are not growing substantially. SRI’s primary source of financing is a $45-million credit line with Wachovia Bank. Overall cash has decreased over the last two years since SRI is reducing its credit line.
Part D. Accounting Policies The company considers all highly liquid investments with a maturity of three months or less to be cash equivalents. Property, plant and equipment are stated at cost. Depreciation and amortization are computed by the straight-line method with a half-year convention over the estimated useful lives of the assets, or for leasehold improvements for the term of the related leases. Revenues are recognized as the agreed upon products and services are delivered, generally daily. A packing slip and a randomly generated delivery confirmation signed and dated by our customer evidence delivery of product. Notes to financial statements • Description of Organization and Business • Summary of Significant Accounting Policies • Property, Plant, and Equipment • Notes Payable to the Bank • Operating Leases • Bonds Payable • Commitments and Contingencies • Income Tax • Shareholders’ Equity • Stock Options • K. Earnings (loss) per Share • L. SRI 401(k) Plan • M. Related Party Transactions • N. Legal Proceedings
