Exhibit 99.1
Span-America Reports Higher Sales and Net Income for Second Quarter of Fiscal
2005
GREENVILLE, S.C.--(BUSINESS WIRE)--April 25, 2005--Span-America Medical
Systems, Inc. (NASDAQ:SPAN) today reported a slight increase in sales and higher
net income for the second quarter ended April 2, 2005.
"Span-America's net income rose 20% to $600,000, or $0.22 per diluted
share, in the second quarter on the strength of higher medical sales," stated
Jim Ferguson, president and chief executive officer of Span-America Medical
Systems. "Total sales for the quarter increased 1% to $13.0 million compared
with the second quarter of last year. The growth in medical sales for the
quarter was largely offset by lower sales of consumer bedding products."
Second Quarter Results
Sales for the second quarter were $12.96 million compared with $12.87
million in the second quarter of fiscal 2004. The Secure I.V. safety catheter
was not offered for sale in the second quarter pending the completion of design
enhancements.
Medical sales for the quarter jumped 20% to $7.7 million. Mattress product
sales rose 43% compared with the second quarter of last year and benefited from
higher sales across the product line, including especially strong sales of the
Company's proprietary PressureGuard APM(R) and CFT(R) mattresses. In addition,
mattress sales benefited from a large order from a long-term care customer and
higher sales of recently launched private label mattresses.
In other medical product lines, sales of seating products were up 6%.
Selan(R) skin care products increased 3%. Sales of Span-Aids(R) and private
label patient positioners were down 20% in the second quarter because of a
decline in the Company's export business. Overlay sales were down 15%,
continuing a trend of overlays losing market share to mattresses.
"We are pleased by the increased demand for our specialty medical
mattresses," stated Mr. Ferguson. "We enjoyed broad-based growth across our
product line, demonstrating the excellent clinical results and cost effective
solutions provided by our specialty mattresses. We are particularly encouraged
by our sales performance in the long-term care market and by our private label
products."
Sales in the custom products segment declined 18% to $5.3 million in the
second quarter compared with $6.4 million in the second quarter last year.
Softer demand for consumer bedding products resulted from increased competition
in the mattress pad business, particularly from visco foam products, and in
pillow products where a portion of the business was lost to a competing product
produced in China. Sales in consumer mattress pad and pillow product lines
declined by 22% to $4.5 million compared with $5.7 million in the second quarter
last year. Sales of industrial products, included in the custom products
segment, rose 8% during the second quarter due to increased business from
existing and new customers.
Gross profit increased 14% to $3.8 million compared with $3.4 million in
the year-earlier quarter. Gross profit margin rose to 29.7% from 26.2% in the
second quarter last year. The improvements in gross profit level and margin were
the result of a more profitable product mix for the quarter compared with the
second quarter of fiscal 2004.
Selling and marketing expenses increased by 4% during the quarter due
primarily to higher commissions and travel expenses related to the medical
segment. Administrative expenses increased 9% in the second quarter due mostly
to an increase in property and casualty insurance expense and lower
expense-offsetting income received on officer life insurance policies. R&D
expenses rose 101% to $324,000 compared with $161,000 in the second quarter last
year. Most of the increase occurred in the safety catheter segment and was
related to design changes and other development costs for the Secure I.V.(R)
safety catheter product line. R&D expenses were also up in the medical segment
due to ongoing new product development projects.
Total operating costs for the safety catheter segment in the second quarter
were $477,000 compared with $144,000 in the second quarter last year. The
increased costs were primarily due to higher expenses for labor, scrapped
material, engineering and product development related to product design changes
and production test runs. The redesigned product is currently in the final
testing phase and if successful, commercial production and sales are scheduled
to restart in the third fiscal quarter.
Operating profit for the second quarter climbed 27% to $762,000 compared
with $599,000 in the second quarter last year. The profit increase was due
primarily to higher medical sales.
Non-operating income for the second quarter declined by 6% to $159,000
compared with $169,000 in last year's second quarter. The decline was due to
lower royalty income on the Safety-Lok(R) syringe licensed to Becton Dickinson
and Company (BD). Royalty income for the second quarter declined 12% to $138,000
compared with $156,000 in the year earlier quarter. The Company's license
agreement with BD will expire in December 2005 and no further royalty payments
will be received after that date.
Net income for the second quarter increased 20% to $600,000, or $0.22 per
diluted share, compared with $498,000, or $0.18 per diluted share in the second
quarter last year largely due to higher sales in the medical segment.
Year-to-Date
For the first half of fiscal 2005, sales declined 3% to $23.7 million
compared with $24.4 million. Custom products segment sales were down 24% to $9.5
million compared with $12.5 million in the first half of fiscal 2004. The
decline in custom products sales was mostly offset by strong growth in the
medical segment where sales increased 20% in the first half to $14.2 million
compared with $11.8 million in the first half of last year. Most of the
year-to-date growth in the medical segment came from higher sales in the
PressureGuard therapeutic replacement mattress line.
Earnings for the first two quarters of fiscal 2005 increased 19% to $1.1
million, or $0.40 per diluted share, compared with $920,000, or $0.34 per
diluted share, for the same period in fiscal 2004. The increase in earnings was
primarily the result of higher medical sales and a more profitable product mix
as medical sales rose by 20% while custom products sales fell by 24%.
Outlook for Fiscal 2005
"We expect continued growth in sales and earnings in the medical segment
for the remainder of fiscal 2005; however medical sales are not expected to be
as strong as the 20% growth rate we achieved in the first half of the year,"
noted Mr. Ferguson. "We expect sales of custom products to increase modestly
over first half 2005 levels but should be lower than custom products sales in
the comparable period last year. Our results in the safety catheter segment will
depend on the success of the product design changes that we have just completed.
Development and other operating costs in the safety catheter segment are
expected to be slightly lower during the remainder of fiscal 2005 than in the
first half of the fiscal year.
"We believe our overall business will continue to perform well during the
remainder of fiscal 2005, but conditions are likely to be more challenging over
the next several quarters because of continued softness in the custom products
business and higher petroleum based foam raw material costs that could have a
negative impact on our margins," concluded Mr. Ferguson.
About Span-America Medical Systems, Inc.
Span-America manufactures and markets a comprehensive selection of pressure
management products for the medical market, including Geo-Matt(R),
PressureGuard(R), Geo-Mattress(R), Span+Aids(R), Isch-Dish(R), and Selan(R)
products. The Company also supplies custom foam and packaging products to the
consumer and industrial markets. Span-America's stock is traded on The Nasdaq
Stock Market's National Market under the symbol SPAN.
Forward-Looking Statements
The Company has made forward-looking statements in this release, regarding
management's expectations for future sales and earnings performance. Management
wishes to caution the reader that these statements are only predictions. Actual
events or results may differ materially as a result of risks and uncertainties
facing the Company including: (a) the loss of a key distributor of the Company's
medical or custom products, (b) inability to achieve anticipated sales volumes
of medical or custom products, (c) raw material cost increases, (d) the degree
of success achieved in manufacturing and selling the Secure I.V. safety catheter
product line, (e) potential problems arising from having a sole source contract
manufacturer for the Secure I.V. product line, (f) the potential for lost sales
due to competition from low-cost foreign imports, (g) changes in relationships
with large customers, (h) the impact of competitive products and pricing, (i)
government reimbursement changes in the medical market, (j) FDA regulation of
medical device manufacturing, and other risks referenced in the Company's
Securities and Exchange Commission filings. The Company disclaims any obligation
to update publicly any forward-looking statement, whether as a result of new
information, future events or otherwise. Span-America Medical Systems, Inc. is
not responsible for changes made to this document by wire services or Internet
services.
SPAN-AMERICA MEDICAL SYSTEMS, INC.
Statements of Income (Unaudited)
3 Months Ended
---------------------------
April 2, April 3,
2005 2004 % Chg
------------- ------------- -----
Net sales $12,955,000 $12,868,800 1%
Cost of goods sold 9,108,900 9,491,200 -4%
------------- -------------
Gross profit 3,846,100 3,377,600 14%
29.7% 26.2%
Selling and marketing expenses 1,957,600 1,879,100 4%
Research and development expenses 323,700 161,400 101%
General and administrative expenses 803,100 738,400 9%
------------- -------------
3,084,400 2,778,900 11%
Operating income 761,700 598,700 27%
5.9% 4.7%
Investment income 20,300 12,100 68%
Royalty income 138,300 156,500 -12%
Other 700 800 -13%
------------- -------------
Total non-operating income 159,300 169,400 -6%
Income before income taxes 921,000 768,100 20%
Income taxes 321,000 270,000 19%
------------- -------------
Net income $600,000 $498,100 20%
4.6% 3.9%
============= =============
Net income per share of common
stock:
Basic $0.23 $0.19 19%
Diluted 0.22 0.18 21%
Dividends per common share (1) $0.040 $0.035 14%
Weighted average shares outstanding
- -------------------------------------
Basic 2,599,603 2,577,756 1%
Diluted 2,738,250 2,747,573 0%
Supplemental Data
- -------------------------------------
Depreciation expense 181,800 139,900 30%
Amortization expense 31,500 23,600 33%
6 Months Ended
---------------------------
April 2, April 3,
2005 2004 % Chg
------------- ------------- -----
Net sales $23,732,300 $24,377,300 -3%
Cost of goods sold 16,627,600 18,098,000 -8%
------------- -------------
Gross profit 7,104,700 6,279,300 13%
29.9% 25.8%
Selling and marketing expenses 3,738,300 3,488,700 7%
Research and development expenses 564,300 332,400 70%
General and administrative expenses 1,428,200 1,369,200 4%
------------- -------------
5,730,800 5,190,300 10%
Operating income 1,373,900 1,089,000 26%
5.8% 4.5%
Investment income 42,800 29,200 47%
Royalty income 270,200 297,800 -9%
Other 1,600 1,600 0%
------------- -------------
Total non-operating income 314,600 328,600 -4%
Income before income taxes 1,688,500 1,417,600 19%
Income taxes 590,000 498,000 18%
------------- -------------
Net income $1,098,500 $919,600 19%
4.6% 3.8%
============= =============
Net income per share of common
stock:
Basic $0.42 $0.36 18%
Diluted 0.40 0.34 19%
Dividends per common share (1) $0.480 $0.070 586%
Weighted average shares outstanding
- -------------------------------------
Basic 2,596,097 2,569,356 1%
Diluted 2,736,621 2,725,879 0%
Supplemental Data
- -------------------------------------
Depreciation expense 355,300 277,600 28%
Amortization expense 60,000 47,700 26%
(1) Dividends for the six-month period ending April 2, 2005 include a
special, one-time dividend of $0.40 per share declared in December
2004.
SPAN-AMERICA MEDICAL SYSTEMS, INC.
Balance Sheets
April 2, Oct. 2,
2005 2004
(Unaudited) (Note)
-------------------------
Assets
Current assets:
Cash and cash equivalents $1,125,700 $1,707,600
Securities available for sale 4,662,200 4,673,500
Accounts receivable, net of allowances 6,133,300 6,432,100
Inventories 2,908,300 2,717,600
Prepaid expenses and deferred income taxes 578,400 912,400
------------ ------------
Total current assets 15,407,900 16,443,200
Property and equipment, net 6,512,300 6,184,800
Cost in excess of fair value of net assets
acquired,
net of accumulated amortization 1,924,100 1,924,100
Other assets 2,612,600 2,362,800
------------ ------------
$26,456,900 $26,914,900
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $2,599,800 $2,570,300
Accrued and sundry liabilities 1,775,700 2,249,900
------------ ------------
Total current liabilities 4,375,500 4,820,200
Deferred income taxes 776,000 776,000
Deferred compensation 883,300 899,300
Shareholders' equity
Common stock, no par value, 20,000,000
shares authorized; issued and outstanding
shares 2,611,768 (2005) and 2,585,718
(2004) 707,000 557,900
Additional paid-in capital 19,300 19,300
Retained earnings 19,695,800 19,842,200
------------ ------------
Total shareholders' equity 20,422,100 20,419,400
------------ ------------
$26,456,900 $26,914,900
============ ============
Note: The Balance Sheet at October 2, 2004 has been derived from the
audited financial statements at that date.
CONTACT: Span-America Medical Systems, Inc.
Jim Ferguson, 864-288-8877, ext. 6912