Exhibit 99.1
Span-America Reports Increase in Sales
and Net Income for Fourth Quarter of Fiscal 2005
GREENVILLE, S.C.--(BUSINESS WIRE)--Nov. 2, 2005--Span-America
Medical Systems, Inc. (NASDAQ:SPAN) today reported its results for the
fourth quarter and year ended October 1, 2005.
"Span-America's sales rose 3% to $14.1 million and net income
jumped 55% to $922,000, or $0.34 per diluted share, compared with the
fourth quarter of last year due to strong performance from our medical
business," stated Jim Ferguson, president and chief executive officer
of Span-America Medical Systems. "Total medical sales rose 59% to $9.4
million compared with $5.9 million in the fourth quarter of last year,
more than offsetting the decline in lower-margin consumer bedding
sales in our custom products segment."
Fourth Quarter Results
Total net sales increased 3% during the quarter to $14.1 million
compared with $13.7 million in the fourth quarter last year. All of
the sales growth in the quarter came from the medical segment. Medical
therapeutic surface sales were up 97% during the quarter, seating
products increased 20%, Selan(R) skin care sales rose 15%,
Span-Aids(R) positioners climbed 1%, and overlays were down by 14%
compared with the fourth quarter of the prior year.
"We are extremely pleased with the record setting sales
performance in our medical business. Approximately one third of our
medical revenues came from new products that have been developed and
introduced in the last three years. We are very encouraged that our
new-product development efforts are paying off, and we plan to
continue to invest in future growth opportunities for the medical
business," continued Mr. Ferguson.
Sales of the Company's proprietary PressureGuard(R) and
Geo-Mattress(R) product lines were strong contributors to the medical
sales growth during the fourth quarter. About half of the growth in
medical mattress sales was attributable to Span-America's
private-label CFT(R) mattresses, which are sold primarily in acute
care hospitals. Sales of PressureGuard Easy Air(R) and APM(R) mattress
products and the Company's line of Geo-Mattress foam mattresses
accounted for the balance of fourth quarter medical mattress growth.
Custom products sales fell by 39% in the fourth quarter to $4.7
million compared with $7.7 million in fourth quarter of last year.
Lower sales of consumer bedding products accounted for the majority of
the decline in custom product revenues compared with the prior year.
Sales of industrial products, which are also part of the custom
products segment, declined 16% in the fourth quarter to $539,000.
"Sales of consumer bedding products are under continued pressure
from imports from China and visco foam products that are capturing an
increasing share of pillow and mattress pad sales," noted Mr.
Ferguson. "We are working closely with our marketing partner,
Louisville Bedding Company, to develop new products and regain sales
momentum in this segment. We expect the markets for consumer products
to also be affected over the next one to two quarters by pricing
volatility for polyurethane foam, the principal raw material in our
consumer bedding products."
Fourth quarter custom products revenues were affected by a 66%
decline in pillow sales resulting from the loss of business at a large
customer to a competing product manufactured in China. Consumer
mattress pad sales were down 35% due to increased competition from
visco foam products and changes in marketing programs at several
retail customers. Industrial products sales were down to existing
customers and outpaced new business won during the fourth quarter.
"We began shipments of the Secure I.V. safety catheter during the
fourth quarter," commented Mr. Ferguson. "Sales were minimal for the
quarter, but we expect revenues to grow as more customers have the
opportunity to evaluate the product. Initial feedback has been
positive and we plan to increase our sales and marketing activities to
support the product's launch."
Total costs associated with the safety catheter segment during the
fourth quarter were $325,000 compared with $171,000 in the fourth
quarter last year. The safety catheter expenses included costs for
manufacturing, product development and marketing. After-tax costs for
the safety catheter segment were $203,000, or $0.07 per diluted share,
in the fourth quarter of fiscal 2005.
Gross profit for the quarter rose 31% to $4.5 million, or 31.9% of
net sales, compared with $3.4 million, or 25% of net sales in the
fourth quarter of last year. The shift in mix toward medical product
sales was the main reason for the growth in margins and gross profit.
Span-America benefited from lower material, labor and manufacturing
overhead costs both in absolute dollars and as a percent of sales due
to a combination of lower custom products sales, higher medical sales
and a shift in sales mix toward more profitable products.
Operating profit almost doubled for the quarter, increasing 93% to
$1.3 million compared with $684,000 in the fourth quarter of last
year. Selling and marketing expenses rose 23% during the fourth
quarter mainly to support the growth in the medical business. R&D
expenses were up 43% during the quarter as a result of development
costs associated with the Secure I.V. product line and ongoing
development projects in the medical business. Administrative expenses
declined by 6% during the quarter due mostly to lower expenses for bad
debt and professional fees.
Non-operating income increased 26% during the fourth quarter to
$154,000 primarily due to higher investment income and a gain on the
sale of manufacturing equipment during the quarter. Royalty income on
the Safety-Lok(R) (1) syringe licensed to Becton, Dickinson and
Company (BD) was flat at $116,000. The Company's license agreement
with BD is scheduled to expire in December 2005 due to the expiration
of the related patents. The Company expects to receive the final
royalty payment from BD in February 2006.
Net income for the fourth quarter increased 55% to $922,000, or
$0.34 per diluted share, compared with $595,000, or $0.22 per diluted
share, in the fourth quarter last year. The increase in earnings was
primarily the result of higher sales volume in the medical business.
Fiscal Year Results
Total net sales for fiscal year 2005 were down 3% to $48.4 million
compared with $49.9 million in fiscal 2004. The decline was due to
lower sales of custom products that were down 32% to $18.1 million,
offset somewhat by a 30% increase in medical sales to $30.3 million
compared with $23.3 million in the prior year. There were no
significant sales in the safety catheter segment during fiscal 2005.
For fiscal 2005, the majority of the sales growth in the medical
segment was due to a 58% increase in revenues from therapeutic
surfaces, including strong sales from PressureGuard CFT, APM and Easy
Air products. In other medical product lines, seating products
increased 10%, Selan skin care products increased 9%, patient
positioners declined by 9% due mostly to lower export sales, and
overlays declined by 14%, continuing a long-term trend of customers
switching to replacement mattresses from overlays. Custom products
sales declined 32% in fiscal 2005 to $18.1 million due mainly to lower
volumes of consumer bedding products as a result of increased
competition from imports and visco foam products.
Operating profit for fiscal 2005 rose 36% to $3.1 million on the
strength of the medical business. Non-operating income was flat for
the year at $640,000 as gains on sales of manufacturing equipment and
higher investment income offset a decline in royalty income during the
year.
Expenses related to the development of the Secure I.V. safety
catheter rose in fiscal 2005 due to costs associated with product
design enhancements made earlier in the fiscal year. Total expenses in
the safety catheter segment for fiscal 2005 were $1.5 million compared
with $684,000 in fiscal 2004. After taxes, this represents a net loss
in the safety catheter segment of $969,000, or $0.35 per diluted
share, compared with $461,000, or $0.17 per diluted share, in fiscal
2004.
Net income for the total company in fiscal 2005 rose 23% to a
record $2.4 million compared with $2.0 million in fiscal 2004.
Likewise, diluted earnings per share increased 23% in 2005 to a record
$0.89 compared with $0.73 last year.
Outlook for Fiscal 2006
"We remain very positive about Span-America's long-term growth
prospects," stated Mr. Ferguson. "Our medical segment continues to be
our economic engine. We have a strong product line of therapeutic
surfaces that continue to gain market share in both our proprietary
and private label brands. We will continue to invest in new products
and new customer and distributor relationships.
"During the past quarter, we began shifting our focus from design
and development of the Secure I.V. product line to sales and marketing
of the new products. We believe Secure I.V. will make a meaningful
contribution to fiscal 2006 sales, and we expect that expenses related
to Secure I.V. will be lower in fiscal 2006 than they were in fiscal
2005.
"Near term, our outlook is clouded by the current pricing and
supply situation for polyurethane foam, our largest raw material
category. Our purchases of polyurethane foam represented about 44% of
our total cost of goods sold in fiscal 2005. As we announced on
October 13th, our suppliers notified us of price increases of 10% to
37%, depending on the type of foam, effective November 7th. We were
subsequently notified of an additional 10% surcharge placed on most
types of foam effective October 24th. We expect the price increases to
affect both the supply of competitive products and the demand for
products that include foam as a major raw material component. Based on
conversations with our suppliers, we do not expect Span-America to be
on allocation for any key foam raw materials.
"We believe the higher foam costs will be mostly a short-term
problem since they are being caused by Gulf Coast hurricane-related
disruptions in the supply of certain chemicals used in the foam
manufacturing process. Some of the price increases may be longer-term
in nature since they are related to higher natural gas costs. We plan
to raise our sales prices in tandem with the increased costs of foam,
but we do not expect to recoup all of our higher raw material costs
due to competition in certain markets and pricing established in
certain contracts. At this point, we expect that the higher foam
prices could reduce our earnings in the first quarter of fiscal 2006,
but we cannot quantify the effect until we have some operating history
with the increased costs, potential shifts in demand and related
competitive factors.
"We expect higher foam prices to also have an effect on our custom
products business. It is more volatile than our medical business due
to the nature of the retail market and increased competition from
imported products. We will work hard with our marketing partner,
Louisville Bedding Company, to manage the cost increases and regain
sales momentum in the consumer bedding market through new products,
new relationships and new market programs.
"Regardless of the circumstances, we will continue to make every
effort to protect and enhance the value of the company and to keep
Span-America well positioned for long-term growth and profitability,"
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 and the possible effects on the Company of unusual events
in the polyurethane foam market. 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) volatile pricing and supply
conditions in the market for polyurethane foam caused by recent
hurricane damage in the Gulf Coast region, (b) the potential for
shortages of foam caused by hurricane-related disruptions in the
supply of chemicals used in foam manufacturing, (c) the potential for
lost revenues and earnings as a result of the Company's actions to
increase its sales prices in response to unusually high raw material
cost increases, (d) the loss of a key distributor of the Company's
medical or custom products, (e) the inability to achieve anticipated
sales volumes of medical or custom products, (f) raw material cost
increases, (g) the degree of success achieved in manufacturing and
selling the Secure I.V. safety catheter product line, (h) potential
problems arising from having a sole source contract manufacturer for
the Secure I.V. product line, (i) the potential for lost sales due to
competition from low-cost foreign imports, (j) changes in
relationships with large customers, (k) the impact of competitive
products and pricing, (l) government reimbursement changes in the
medical market, (m) 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.
(1) Safety-Lok is a registered trademark of Becton, Dickinson and
Company.
SPAN-AMERICA MEDICAL SYSTEMS, INC.
Statements of Income (Unaudited)
3 Months Ended
---------------------------
Oct. 1, Oct. 2,
2005 2004 % Chg
--------------------------------
Net sales $ 14,080,582 $ 13,651,250 3%
Cost of goods sold 9,590,205 10,232,158 -6%
---------------------------
Gross profit 4,490,377 3,419,092 31%
31.9% 25.0%
Selling and marketing expenses 2,176,578 1,771,713 23%
Research and development expenses 253,068 177,112 43%
General and administrative expenses 740,124 786,071 -6%
---------------------------
3,169,770 2,734,896 16%
Operating income 1,320,607 684,196 93%
9.4% 5.0%
Investment income 34,215 17,926 91%
Royalty income 115,548 115,407 0%
Other 4,691 (10,591) 144%
---------------------------
Total non-operating income 154,454 122,742 26%
Income before income taxes 1,475,061 806,938 83%
Income taxes 553,000 212,000 161%
---------------------------
Net income $ 922,061 $ 594,938 55%
6.5% 4.4%
===========================
Net income per share of common stock:
Basic $ 0.35 $ 0.23 54%
Diluted 0.34 0.22 54%
Dividends per common share (2) $ 0.045 $ 0.040 13%
Weighted average shares outstanding
-----------------------------------
Basic 2,611,768 2,591,548 1%
Diluted 2,745,907 2,736,480 0%
Supplemental Data
-----------------------------------
Depreciation expense $ 173,316 $ 170,434 2%
Amortization expense 34,905 25,727 36%
12 Months Ended
---------------------------
Oct. 1, Oct. 2,
2005 2004 (1) % Chg
--------------------------------
Net sales $ 48,439,310 $ 49,929,129 -3%
Cost of goods sold 33,725,836 37,238,586 -9%
---------------------------
Gross profit 14,713,474 12,690,543 16%
30.4% 25.4%
Selling and marketing expenses 7,656,876 6,924,720 11%
Research and development expenses 1,141,198 686,413 66%
General and administrative expenses 2,781,951 2,771,205 0%
---------------------------
11,580,025 10,382,338 12%
Operating income 3,133,449 2,308,205 36%
6.5% 4.6%
Investment income 113,342 101,958 11%
Royalty income 497,516 545,072 -9%
Other 29,600 (8,326) 456%
---------------------------
Total non-operating income 640,458 638,704 0%
Income before income taxes 3,773,907 2,946,909 28%
Income taxes 1,335,000 962,000 39%
---------------------------
Net income $ 2,438,907 $ 1,984,909 23%
5.0% 4.0%
===========================
Net income per share of common stock:
Basic $ 0.94 $ 0.77 22%
Diluted 0.89 0.73 23%
Dividends per common share (2) $ 0.565 $ 0.145 290%
Weighted average shares outstanding
-----------------------------------
Basic 2,603,932 2,579,451 1%
Diluted 2,739,149 2,731,873 0%
Supplemental Data
-----------------------------------
Depreciation expense $ 715,706 $ 618,559 16%
Amortization expense 128,671 98,449 31%
(1) The fiscal year ended October 2, 2004, was a 53-week year
compared with a 52-week year for the year ended October 1, 2005.
(2) Dividends per share for the fiscal year ended October 1, 2005,
include a special dividend of $0.40 per share paid on January 12,
2005.
SPAN-AMERICA MEDICAL SYSTEMS, INC.
Balance Sheets
Oct. 1, Oct. 2,
2005 2004
(Unaudited) (Note)
------------ ------------
Assets
Current assets:
Cash and cash equivalents $894,386 $1,707,598
Securities available for sale 4,106,326 4,673,528
Accounts receivable, net of allowances 7,232,522 6,432,086
Inventories 3,216,483 2,717,573
Prepaid expenses and deferred income
taxes 557,172 912,404
------------ ------------
Total current assets 16,006,889 16,443,189
Property and equipment, net 8,089,511 6,184,786
Cost in excess of fair value of net assets
acquired, net of accumulated amortization 1,924,131 1,924,131
Other assets 2,645,314 2,362,819
------------ ------------
$28,665,845 $26,914,925
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $2,704,100 $2,570,352
Accrued and sundry liabilities 2,664,618 2,249,898
------------ ------------
Total current liabilities 5,368,718 4,820,250
Deferred income taxes 869,000 776,000
Deferred compensation 866,750 899,283
Shareholders' equity
Common stock, no par value, 20,000,000
shares authorized; issued and
outstanding shares 2,611,768 (2005) and
2,592,218 (2004) 707,016 557,856
Additional paid-in capital 41,882 19,297
Retained earnings 20,814,191 19,842,239
Accumulated other comprehensive income (1,712)
------------ ------------
Total shareholders' equity 21,561,377 20,419,392
------------ ------------
$28,665,845 $26,914,925
============ ============
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., Greenville
Jim Ferguson, 864-288-8877, ext. 6912