EXHIBIT 99.1
Span-America Reports Fourth Quarter Results
GREENVILLE, S.C.--(BUSINESS WIRE)--Nov. 2, 2006--Span-America
Medical Systems, Inc. (NASDAQ:SPAN) today reported its results for the
fourth quarter and fiscal year ended September 30, 2006.
"Span-America reported record sales of $51.6 million and record
earnings of $3.1 million for fiscal 2006," stated Jim Ferguson,
president and CEO of Span-America Medical Systems. "Our excellent
results benefited from the strong performance of our medical segment
that grew 21% to $36.7 million and accounted for 71% of total sales
for the year.
"Fourth quarter sales of medical products were a record $9.7
million, up from $9.4 million in the fourth quarter of the prior year.
The continued growth in our medical business was offset by lower sales
in our custom products segment that we experienced throughout the
year. Fourth quarter custom product sales declined 19% to $3.8 million
due to the phase-out of a consumer product line with Wal-Mart and the
transition to a new private label line late in the quarter. The weak
performance of our custom products segment was the major factor in
fourth quarter sales being down 4% to $13.5 million and net income
declining by 2% to $900,000, or $0.32 per diluted share, from the
prior year's fourth quarter," continued Mr. Ferguson.
Fourth Quarter Segment Review
Medical Segment
Medical segment sales increased 3% to $9.7 million compared with
$9.4 million in the fourth quarter last year. The growth was primarily
due to improved sales across the Company's broad line of proprietary
therapeutic surfaces that grew 4% to $7.2 million and made up
approximately 75% of total medical sales. Sales of the
PressureGuard(R) CFT(R) mattress, including the private-label line of
mattresses manufactured for Hill-Rom, were a major contributor to
fourth quarter revenues.
"Our rate of sales growth slowed in the medical segment in the
fourth quarter from the double-digit rates experienced earlier this
year," noted Mr. Ferguson. "This was partially due to the comparison
with a very strong fourth quarter last year that included the shipment
of two large orders at year-end. We remain optimistic about continued
growth opportunities for our medical products based on our broad
product line and continued focus on new product innovation."
Sales of mattress overlays were up 9% due in part to a price
increase earlier in the year, the Selan skin care line was up 7%,
patient positioners were down 4%, and seating products were down 13%
due partly to problems with a supplier of a component part.
Custom Products Segment
Custom products segment sales declined 19% to $3.8 million
compared with $4.7 million in the fourth quarter of last year. Within
this segment, consumer sales were down by 29% due primarily to lower
sales of mattress pads to Wal-Mart. During the fourth quarter, the
previous product line was phased out.
"During the last month of the quarter, we began shipments of our
new Fusion(TM) mattress pads to Wal-Mart," noted Mr. Ferguson. "The
Fusion mattress pads are being sold under Wal-Mart's HomeTrends brand.
Early indications from point-of-sale data indicate that the new
product is selling well. We are optimistic that the Fusion line will
improve our potential for consumer sales in future quarters.
"Our industrial product line has shown solid progress in fiscal
2006 due to increased demand from existing customers in the recreation
and automotive markets. Industrial sales were up 55% to $834,000
during the fourth quarter compared to $539,000 in the fourth quarter
last year."
Safety Catheter Segment
Safety catheter segment sales rose to $49,000 in the fourth
quarter of fiscal 2006 compared with $7,000 in the same quarter last
year. Fourth quarter sales included $26,000 in sales of the Secure
I.V.(R) safety catheter and $23,000 in sales of the HuberPro(R) safety
Huber needle infusion set. There were no comparable sales of HuberPro
in the prior year's fourth quarter and only minimal sales of Secure
I.V.
"We are more positive about the future of our safety catheter
sales due to recently signed distribution agreements for Secure I.V.
and the acquisition of the HuberPro product," stated Mr. Ferguson.
"Secure I.V. is generating interest from our previously announced
agreement with Novation, and we recently rolled out Secure I.V. to the
emergency medical market through our distributor, Bound Tree Medical."
Fourth Quarter Results
Net sales for the fourth quarter of fiscal 2006 were down 4% to
$13.5 million compared with $14.1 million in the fourth quarter last
year. The sales decline occurred in the custom products segment, where
sales were down 19% to $3.8 million compared with $4.7 million in the
fourth quarter last year.
Gross profit for the fourth quarter declined by 6% to $4.2 million
compared with $4.5 million in the fourth quarter last year. The
decline in gross profit was due to lower sales of custom products, a
less profitable product mix within the medical segment and slightly
higher manufacturing overhead expenses. The increase in overhead
expense included costs for closing the Company's California
manufacturing plant in the fourth quarter and relocating certain
equipment to the South Carolina plant. The California manufacturing
plant is being replaced by a distribution center located in Salt Lake
City.
"We believe our manufacturing efficiency will improve by shifting
production to our main plant in South Carolina," noted Mr. Ferguson.
"The addition of the Salt Lake City distribution facility, which
opened in late October, will give us an attractive shipping point in
the West. In addition, we expect to benefit from lower raw material
costs for foam in South Carolina than in California."
Operating income for the fourth quarter declined by 12% to $1.16
million from a record $1.32 million in the fourth quarter last year.
The decline in operating profit during the quarter was due mainly to
the drop in consumer sales and a less profitable product mix within
the medical segment. This was partially offset by a reduced operating
loss from the safety catheter segment that declined 24% in the fourth
quarter to $245,000 from $325,000 in the fourth quarter last year. The
decline in the safety catheter operating loss was mainly the result of
higher sales volume and lower R&D expenses for Secure I.V. compared
with the fourth quarter of the prior year.
Fourth quarter operating profit margin declined to 8.6% from 9.4%
primarily due to lower sales of consumer products and the medical mix
change. Total SG&A expenses declined by 3% during the fourth quarter,
reflecting the decline in consumer sales and lower R&D expenses in the
safety catheter segment.
Non-operating income was down 25% during the fourth quarter to
$116,000 compared with $154,000 in the fourth quarter last year.
Royalty income declined by $116,000 in the fourth quarter due to the
expiration of the royalty agreement and related patents in December
2006. That decline was partly offset by a $47,000 gain on the sale of
assets and by an increase in investment income due to higher interest
rates on the Company's short-term investments.
Net income for the fourth quarter declined by 2% to $900,000, or
$0.32 per diluted share, compared with a record $922,000, or $0.34 per
diluted share, in the fourth quarter last year. The decline in
earnings was caused by lower consumer sales, a less profitable medical
sales mix and slightly higher manufacturing overhead expense.
Fiscal Year Results
Total net sales for fiscal year 2006 increased 6% to $51.6 million
compared with $48.4 million in fiscal 2005. The majority of the sales
growth came from the medical segment. Earnings for the year increased
25% to $3.1 million compared with $2.4 million in fiscal 2005. Diluted
earnings per share increased 24% to $1.10 compared with $0.89 last
year. The increase in earnings was mainly the result of strong sales
growth in the medical segment and a decline in R&D expenses in the
safety catheter segment compared with fiscal 2005.
Sales in the core medical business grew 21% to $36.7 million in
fiscal 2006 compared with $30.3 million in fiscal 2005. Sales of
therapeutic surfaces grew by 28% in fiscal 2006 to $26.8 million,
representing 73% of total medical sales. The Company's broad line of
PressureGuard powered surfaces were sales leaders for the year. The
PressureGuard Safety Supreme(TM) mattress was introduced in early
fiscal 2006 with a very successful product launch that contributed to
the year's excellent growth in medical product sales.
Custom products segment sales declined by 18% during fiscal 2006
to $14.8 million compared with $18.1 million in fiscal 2005. All of
the decline occurred in the consumer portion of the custom products
segment and was related to the phase out of the previous product line
of foam overlays sold to Wal-Mart. Sales of industrial products,
included in the custom products segment, climbed 46% to $3.6 million
compared with $2.5 million in fiscal 2005. The increase in industrial
sales was primarily attributable to higher demand from existing
customers.
Sales in the safety catheter segment rose to $120,000 in fiscal
2006 and consisted of $75,000 in Secure I.V. sales and $45,000 in
sales of HuberPro. Sales of Secure I.V. began in the fourth quarter of
fiscal 2005 and HuberPro in the third quarter of this fiscal year.
Operating income for fiscal 2006 rose 28% to $4.0 million compared
with $3.1 million last year due mainly to higher medical sales and
lower R&D expenses in the safety catheter segment. Non-operating
income declined by 13% during fiscal 2006 because of lower royalty
income due to the expiration of the royalty agreement as previously
described.
The operating loss in the safety catheter segment for fiscal 2006
declined 28% to $1.1 million compared with $1.5 million last year
mainly due to lower R&D expenses. After tax, this represented a loss
of $724,000, or $0.26 per diluted share, in fiscal 2006, compared with
$969,000, or $0.35 per diluted share, in fiscal 2005.
Net income for fiscal 2006 rose by 25% to $3.1 million compared
with $2.4 million in fiscal 2005. Diluted earnings per share increased
24% to $1.10 per share compared with $0.89 per share. The increases in
net income and earnings per share for fiscal 2006 were mainly the
result of the strong growth in the medical business, lower R&D
expenses in the safety catheter segment and lower labor costs due to
improved manufacturing efficiencies.
Outlook for Fiscal 2007
"We expect to report higher sales and earnings in fiscal 2007
based on the strength of our medical business, the main driver of
sales and earnings growth for the company," continued Mr. Ferguson.
"Our product innovation has been a major factor in our growth. Medical
products introduced during the past three years accounted for 40% of
medical sales in fiscal 2006. We remain focused on developing new
products and increasing our market share in targeted medical product
lines. Our expectations for medical sales remain very positive for
fiscal 2007; however, we expect our growth rate may be lower than we
have seen in the last two fiscal years.
"We are also optimistic about our prospects for our custom
products segment in fiscal 2007 due to the recently launched consumer
product line at Wal-Mart and continued growth of industrial sales.
After two years of sales declines in this segment due to major changes
in the consumer market, we expect the new Fusion product line to
provide a solid base on which to build. We also anticipate modest
growth in the industrial product line in fiscal 2007, following a 46%
industrial sales increase in fiscal 2006. We expect the industrial
sales growth to come primarily from new business in the automotive
market.
"The outlook for our safety catheter segment improved late in the
year due to new distribution agreements for Secure I.V. and the
purchase of the HuberPro infusion set. We expect to gather market
feedback over the next two to three quarters that should allow us to
more accurately predict the future success of the Secure I.V. and
HuberPro product lines," 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 Global Market under the
symbol "SPAN." For more information, visit www.spanamerica.com.
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 potential for volatile pricing conditions in the
market for polyurethane foam, (b) the loss of a key distributor for
the Company's products, (c) the inability to achieve anticipated sales
volumes of medical or custom products, (d) raw material cost
increases, (e) the degree of success achieved in manufacturing and
selling the Secure I.V. safety catheter product line, (f) potential
problems arising from having a sole source contract manufacturer for
the Secure I.V. product line, (g) the potential for lost sales due to
competition from low-cost foreign imports, (h) changes in
relationships with large customers, (i) the impact of competitive
products and pricing, (j) government reimbursement changes in the
medical market, (k) 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)
Three Months Ended
------------------------
Sept. 30, Oct. 1,
2006 2005 % Chg
-----------------------------
Net sales $13,493,056 $14,080,582 -4%
Cost of goods sold 9,258,732 9,590,205 -3%
------------------------
Gross profit 4,234,324 4,490,377 -6%
31.4% 31.9%
Selling and marketing expenses 2,151,078 2,176,578 -1%
Research and development expenses 185,533 253,068 -27%
General and administrative expenses 735,152 740,124 -1%
------------------------
3,071,763 3,169,770 -3%
Operating income 1,162,561 1,320,607 -12%
8.6% 9.4%
Investment income 67,501 34,215 97%
Royalty income - 115,548 -100%
Other 48,746 4,691 939%
------------------------
Total non-operating income 116,247 154,454 -25%
Income before income taxes 1,278,808 1,475,061 -13%
Income taxes 379,000 553,000 -31%
------------------------
Net income $899,808 $922,061 -2%
6.7% 6.5%
========================
Net income per share of common stock:
Basic $0.34 $0.35 -4%
Diluted 0.32 0.34 -4%
Dividends per common share (1) $0.060 $0.045 33%
Weighted average shares outstanding
- ----------------------------------------
Basic 2,659,908 2,611,768 2%
Diluted 2,785,898 2,745,907 1%
Supplemental Data
- ----------------------------------------
Depreciation expense $197,773 $173,316 14%
Amortization expense 31,489 35,003 -10%
Twelve Months Ended
------------------------
Sept. 30, Oct. 1,
2006 2005 % Chg
-----------------------------
Net sales $51,556,548 $48,439,310 6%
Cost of goods sold 35,857,885 33,725,836 6%
------------------------
Gross profit 15,698,663 14,713,474 7%
30.4% 30.4%
Selling and marketing expenses 8,208,043 7,656,876 7%
Research and development expenses 633,608 1,141,198 -44%
General and administrative expenses 2,846,534 2,781,951 2%
------------------------
11,688,185 11,580,025 1%
Operating income 4,010,478 3,133,449 28%
7.8% 6.5%
Investment income 204,042 113,342 80%
Royalty income 246,627 497,516 -50%
Other 103,664 29,600 250%
------------------------
Total non-operating income 554,333 640,458 -13%
Income before income taxes 4,564,811 3,773,907 21%
Income taxes 1,510,000 1,335,000 13%
------------------------
Net income $3,054,811 $2,438,907 25%
5.9% 5.0%
========================
Net income per share of common stock:
Basic $1.15 $0.94 23%
Diluted 1.10 0.89 24%
Dividends per common share (1) $0.195 $0.565 -65%
Weighted average shares outstanding
- ----------------------------------------
Basic 2,648,635 2,603,932 2%
Diluted 2,771,924 2,739,149 1%
Supplemental Data
- ----------------------------------------
Depreciation expense $814,210 $715,706 14%
Amortization expense 128,971 128,769 0%
(1) 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
Sept. 30, Oct. 1,
2006 2005
(Unaudited) (Note)
------------ ------------
Assets
Current assets:
Cash and cash equivalents $975,525 $894,386
Securities available for sale 5,134,882 4,106,326
Accounts receivable, net of allowances 6,986,794 7,232,522
Inventories 4,353,479 3,216,483
Prepaid expenses and deferred income taxes 735,684 557,172
------------ ------------
Total current assets 18,186,364 16,006,889
Property and equipment, net 8,132,057 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 2,769,926 2,645,314
------------ ------------
$31,012,478 $28,665,845
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $2,374,357 $2,704,100
Accrued and sundry liabilities 2,474,049 2,664,618
------------ ------------
Total current liabilities 4,848,406 5,368,718
Deferred income taxes 815,000 869,000
Deferred compensation 831,614 866,750
------------ ------------
Total liabilities 6,495,020 7,104,468
Shareholders' equity
Common stock, no par value, 20,000,000
shares authorized; issued and outstanding
shares 2,660,345 (2006) and 2,611,768
(2005) 1,032,118 707,016
Additional paid-in capital 136,614 41,882
Retained earnings 23,352,221 20,814,191
Accumulated other comprehensive loss (3,495) (1,712)
------------ ------------
Total shareholders' equity 24,517,458 21,561,377
------------ ------------
$31,012,478 $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.
Jim Ferguson, 864-288-8877, ext. 6912
President and Chief Executive Officer