EXHIBIT 99.1
Span-America Reports Higher Sales and Net Income for
First Quarter of Fiscal 2006; Declares Quarterly Dividend
GREENVILLE, S.C.--(BUSINESS WIRE)--Jan. 26, 2006--Span-America Medical
Systems, Inc. (NASDAQ:SPAN) today reported a 23% increase in sales to $13.3
million and 58% increase in net income to $789,000, or $0.29 per diluted share,
for the first quarter ended December 31, 2005, compared with the same quarter
the prior year.
The board of directors declared a regular quarterly dividend of $0.045 per
share payable on March 3, 2006, to shareholders of record on February 15, 2006.
"Span-America's strong first quarter growth was due to accelerating sales
in our medical segment, particularly from our proprietary therapeutic
mattresses," stated Jim Ferguson, president and chief executive officer of
Span-America Medical Systems. "Medical sales rose 40% to $9.1 million and
accounted for 69% of total sales, up from 60% in the first quarter of last year.
The increase in medical sales more than offset the slight sales decline in our
custom products segment and the effects of higher costs for foam, our largest
raw material component."
First Quarter Results
Sales in the first quarter of fiscal 2006 rose 23% to $13.3 million
compared with $10.8 million in the first quarter of last year. The major
contributor to sales growth was the medical segment. Sales in the custom
products segment declined 3% to $4.1 million compared with $4.3 million in the
same quarter last year. Sales in the safety catheter segment were $14,000 during
the first quarter and represented the first full quarter that Secure I.V.(R) has
been offered for sale to a limited number of customers.
The majority of medical sales growth was attributable to Span-America's
therapeutic mattresses, which were up by 69% in the first quarter. The recently
introduced private-label version of the Company's PressureGuard(R) CFT(R)
therapeutic mattress was a strong seller to a customer who supplies the product
primarily to the acute care market. In addition, the Company shipped a large
order for the PressureGuard Easy Air(R) low-air-loss mattress to a major long
term care provider. Sales of the Geo-Mattress(R) line of foam therapeutic
surfaces and the Selan(R) line of skin care products were also very good. Higher
sales prices driven by foam cost increases reduced demand for Span-Aids(R)
patient positioners, particularly to export markets, and sales were down 18% for
this product line compared with the first quarter of last year. Sales of seating
products declined by 5%, and mattress overlay sales decreased 7%, continuing a
long-term trend in the market for overlays. Patient positioners, seating
products and mattress overlays accounted for 22% of medical segment sales, down
from 34% in the first quarter of the prior fiscal year.
Custom products sales declined 3% to $4.1 million during the first quarter
primarily due to a 10% decrease in consumer bedding sales caused primarily by a
lower volume of mattress pads sold to Wal-Mart. This decline was offset somewhat
by a 30% increase in sales of pillows and mattress pads to consumer customers
other than Wal-Mart and a 41% increase in industrial product line sales. All of
the Company's consumer bedding products are sold through its marketing partner,
Louisville Bedding Company.
"Competition in our consumer products segment has been stiff from offshore
manufacturers and newer visco foam products that have gained market share,"
stated Mr. Ferguson. "But we are pleased with the way the consumer business has
handled the volatile pricing environment in the first quarter. We had to pass
along price increases to our consumer customers in response to higher foam costs
and to date have not lost any significant customers as a result of the higher
prices. We could still have some volatility in the consumer business going
forward, but we had good growth from one of our large new customers in the first
quarter and are quoting several new sales programs in a joint effort with our
partner Louisville Bedding Company. We will continue to work with Louisville
Bedding and our retail customers to regain some growth opportunities in the
consumer market."
Industrial product line sales benefited from increased purchases from a
large customer who recently consolidated manufacturing operations near the
Company's South Carolina plant. The remainder of the quarter's industrial sales
growth was broad-based, representing higher volume to a number of customers. The
increased demand for industrial products has generally been a leading indicator
of improved manufacturing activity in Span-America's regional markets.
"Sales of the Secure I.V.(R) line of safety catheters were below our
initial expectations based on the positive feedback we have received and the
number of ongoing product evaluations," stated Mr. Ferguson. "The majority of
our prospects like the concept of an IV catheter with a bloodless start feature
and we are optimistic about the potential for the new design. Our challenge will
be in converting the interest in the concept into sales of the product."
First quarter gross profit rose 19% to $3.9 million due to the higher
volume of medical sales; however, gross margin declined to 29.2% from 30.2% in
the first quarter of the prior year due to higher raw material costs,
principally related to foam, our primary raw material.
"We increased some sales prices immediately to reflect higher foam costs
but some sales price increases will not be realized until the second fiscal
quarter because of pricing contracts and competition. We also took steps during
the quarter to lower our labor and overhead costs as a percent of sales to
partially offset the higher material costs," noted Mr. Ferguson.
"We believe the foam pricing situation has stabilized from the unusual
volatility in the first quarter. At this point we believe we will be able to
mostly offset the impact of the higher foam costs through a combination of
higher medical sales volume, targeted sales price increases and various cost
saving efforts."
Operating income for the quarter increased 73% to $1.1 million compared
with $612,000 in the same quarter last year. In general, selling, R&D and
administrative expenses grew at slower rates than sales and gross profit, giving
the Company a faster rate of growth in operating profit. Selling and marketing
expenses were up 10% mostly in the medical segment due to increases in various
expenses that are tied to sales growth such as compensation and shipping costs.
R&D expenses dropped by 38% because of a shift in activities in the safety
catheter segment from product development to production. Administrative expenses
increased 15% due to higher bad debt expense and incentive compensation.
Operating profit and net income were positively impacted by lower costs in
the safety catheter segment. Total pre-tax costs in the safety catheter segment
declined to $272,000 in the first quarter of fiscal 2006 compared with $374,000
in the same quarter last year, primarily due to lower R&D expenses related to
Secure I.V.
Non-operating income rose 2% during the first quarter to $159,000. The
slight increase was the result of higher investment income that was partially
offset by lower royalty income. Investment income increased 75% to $39,000 due
to higher interest rates on marketable securities. Royalty income declined 10%
to $118,000 due to lower sales of the syringe product licensed to Becton,
Dickinson and Company (BD). The Company's royalty agreement with BD expired in
December 2005 due to the expiration of the related patents. Span-America expects
to receive a final royalty payment in February 2006 for syringe sales during the
three-month period ending December 2005.
Outlook for Fiscal 2006
"We expect continued growth in sales and earnings in the second quarter of
fiscal 2006," stated Mr. Ferguson. "We believe the majority of our sales and
earnings growth will come from the medical segment, but growth rates are likely
to be more modest than they were in the first quarter.
"We plan to continue our strong marketing push for our safety catheter
segment and expect sales to grow slowly as the product line gains footing in the
market. We are working with a number of prospects but it is too early in the
process to forecast sales for the year. We do not expect the safety catheter
segment to be profitable in fiscal 2006. "We are pleased with the Company's
excellent performance in the first quarter of fiscal 2006 and in particular with
the strength of our medical business. We are encouraged to be off to such a good
start in this new fiscal year and our outlook for the remainder of the year is
positive," 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) volatile pricing conditions in the market for
polyurethane foam caused by recent hurricane damage in the Gulf Coast region,
(b) 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, (c) the loss of a key distributor of the Company's medical or
custom products, (d) the inability to achieve anticipated sales volumes of
medical or custom products, (e) non-foam raw material cost increases, (f) the
degree of success achieved in manufacturing and selling the Secure I.V. safety
catheter product line, (g) potential problems arising from having a sole source
contract manufacturer for the Secure I.V. product line, (h) the potential for
lost sales due to competition from low-cost foreign imports, (i) changes in
relationships with large customers, (j) the impact of competitive products and
pricing, (k) government reimbursement changes in the medical market, (l) 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
------------------------
Dec. 31, Jan. 1, %
2005 2005 Chg
----------- ----------- ----
Net sales $13,281,511 $10,777,401 23%
Cost of goods sold 9,399,779 7,518,709 25%
----------- -----------
Gross profit 3,881,732 3,258,692 19%
29.2% 30.2%
Selling and marketing expenses 1,951,671 1,780,705 10%
Research and development expenses 151,715 240,633 -37%
General and administrative expenses 721,831 625,112 15%
----------- -----------
2,825,217 2,646,450 7%
Operating income 1,056,515 612,242 73%
8.0% 5.7%
Investment income 39,442 22,542 75%
Royalty income 118,359 131,834 -10%
Other 906 901 1%
----------- -----------
Total non-operating income 158,707 155,277 2%
Income before income taxes 1,215,222 767,519 58%
Income taxes 426,000 269,000 58%
----------- -----------
Net income $ 789,222 $ 498,519 58%
5.9% 4.6%
=========== ===========
Net income per share of common stock:
Basic $ 0.30 $ 0.19 56%
Diluted 0.29 0.18 58%
Dividends per common share (1) $ 0.045 $ 0.440 -90%
Weighted average shares outstanding
- -------------------------------------
Basic 2,630,567 2,592,591 1%
Diluted 2,744,870 2,734,992 0%
Supplemental Data
- -------------------
Depreciation expense 194,382 173,571 12%
Amortization expense 33,611 28,497 18%
(1) Dividends for the period ending January 1, 2005, include a
special dividend of $0.40 per share declared on December 7, 2004.
SPAN-AMERICA MEDICAL SYSTEMS, INC.
Balance Sheets
Dec. 31, Oct. 1,
2005 2005
(Unaudited) (Note)
------------ -----------
Assets
Current assets:
Cash and cash equivalents $ 801,833 $ 894,386
Securities available for sale 3,420,481 4,106,326
Accounts receivable, net of allowances 8,265,351 7,232,522
Inventories 3,701,494 3,216,483
Prepaid expenses and deferred income taxes 740,037 557,172
----------- -----------
Total current assets 16,929,196 16,006,889
Property and equipment, net 8,365,416 8,089,511
Cost in excess of fair value of net assets
acquired, net of accumulated amortization 1,924,131 1,924,131
Other assets 2,644,680 2,645,314
----------- -----------
$29,863,423 $28,665,845
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 2,838,073 $ 2,704,100
Accrued and sundry liabilities 2,889,598 2,664,618
----------- -----------
Total current liabilities 5,727,671 5,368,718
Deferred income taxes 869,000 869,000
Deferred compensation 858,463 866,750
----------- -----------
Total liabilities 7,455,134 7,104,468
Shareholders' equity
Common stock, no par value, 20,000,000
shares authorized; issued and outstanding
shares 2,639,095 (Dec. 31, 2005) and
2,611,768 (Oct. 1, 2005) 858,095 707,016
Additional paid-in capital 68,424 41,882
Retained earnings 21,484,660 20,814,191
Accumulated other comprehensive loss (2,890) (1,712)
----------- -----------
Total shareholders' equity 22,408,289 21,561,377
----------- -----------
$29,863,423 $28,665,845
=========== ===========
Note: The Balance Sheet at October 1, 2005, 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