Exhibit 99.1
Span-America Reports Higher Sales and
Earnings for the Third Quarter of Fiscal 2007
GREENVILLE, S.C.--(BUSINESS WIRE)--July 24, 2007--Span-America
Medical Systems, Inc. (NASDAQ:SPAN) today reported a 21% increase in
net sales to $15.2 million and a 72% increase in net income to $1.3
million, or $0.43 per diluted share, for the third quarter ended June
30, 2007, compared with the third quarter of fiscal 2006.
"Span-America's excellent third quarter results benefited from
strong sales in our medical segment, growth in margins, and improved
operating leverage," stated Jim Ferguson, president and CEO of
Span-America Medical Systems. "Our proprietary line of therapeutic
support surfaces was a major contributor to our overall sales growth
compared with last year. We also benefited from solid sales growth in
our consumer bedding product lines during the quarter."
Third Quarter Results
Sales in the third quarter of fiscal 2007 rose 21% to $15.2
million compared with $12.5 million in the third quarter of last year.
The major contributor to sales growth was the medical segment, which
increased 21% to $11.4 million compared with $9.4 million in the third
quarter last year. Sales in the custom products segment continued to
show solid quarterly growth, up 22% to $3.8 million compared with
$3.1 million in the same quarter last year. Sales in the safety
catheter segment increased 10% to $33,000 compared with $30,000 in the
year-ago quarter.
Medical sales rose to $11.4 million in the third quarter of fiscal
2007 compared with $9.4 million in the third quarter of the prior
year. The majority of the medical sales growth was attributable to the
Company's proprietary therapeutic support surface product lines. Sales
of therapeutic surfaces rose 23% compared with the third quarter of
last year. Product line leaders included Span-America's PressureGuard
Easy Air(R) low-air-loss mattress, the PressureGuard CFT(R), which
includes the private label products made for Hill-Rom, and our
Geo-Mattress(R) line of non-powered mattresses.
The medical segment also benefited from the newest addition to our
seating product line, the Short-Wave(SM) wheelchair seat and back
cushion. Since its introduction in October 2006, the Short-Wave has
quickly become one of our fastest growing medical products. Sales of
seating products jumped 40% during the third quarter, compared with
the third quarter last year, due largely to the contribution from the
Short-Wave product.
Sales volumes in our other medical product lines declined somewhat
in the third quarter. Sales of mattress overlays declined by 9%,
Selan(R) skin care product sales were down by 3% and patient
positioner sales fell by 1%.
Custom products segment sales rose 22% to $3.8 million compared
with $3.1 million in the third quarter of last year. All of the custom
products sales growth came from our consumer bedding products sold to
Wal-Mart and other major retailers through our marketing partner,
Louisville Bedding Company.
Consumer sales, the largest part of the custom products segment,
increased 35% to $2.9 million compared with $2.2 million in the third
quarter of fiscal 2006 due primarily to sales of the new fusion
mattress overlays introduced last fall. The fusion overlays combine
the performance of traditional foam with the feel and features of
visco foam to give customers a unique bedding choice.
Industrial product sales, also included in the custom products
segment, declined 6% to $930,000 in the third quarter, primarily due
to the loss of a customer to competition and a seasonal decline in
sales to another key customer. The addition of new industrial business
did not fully offset the sales declines from the two key customers.
In the safety catheter segment, total sales increased 10% to
$33,000 due to higher sales of Secure I.V(R). The safety catheter
segment consists of two product lines: the Secure I.V. safety catheter
and the HuberPro(R) safety needle infusion set. Sales of Secure I.V.
more than tripled in the third quarter to $27,000 compared with $7,000
in the year earlier quarter. However, sales of HuberPro declined to
$6,000 in the third quarter this year from $22,000 in the same quarter
last year. HuberPro sales in last year's third quarter were unusually
high due to pipeline filling from the initial launch of the product
line.
"We are disappointed that the third quarter sales growth in the
safety catheter segment was not higher," stated Mr. Ferguson. We will
be carefully evaluating this part of our business during the next
several months to determine our future plans for the segment."
Earnings
Gross profit for the third quarter increased by 32% to $5.3
million, or 34.7% of net sales, compared with $4.0 million, or 31.9%
of net sales, in the third quarter last year. The increases in gross
profit and margin benefited from higher sales, lower manufacturing
costs related to the closing of our California manufacturing plant,
and improved operating leverage.
Operating income rose 77% for the quarter to $1.8 million from
$1.0 million in the year-ago quarter as a result of higher sales
volume and slower growth of selling expenses. Selling and marketing
expenses increased 10% during the quarter due to higher shipping costs
and expenses for our new Salt Lake City distribution center. R&D
expenses rose 45% to $204,000 due to continued investments in
development efforts for new medical products. Administrative expenses
increased 31% during the third quarter due to higher expense for
uncollectible accounts and incentive compensation accruals.
The third quarter's results included $26,000 in interest expense
incurred from the addition of $5.7 million in debt to partially fund
the $5.00 per share special dividend paid on June 6, 2007. No
comparable interest expense was incurred in 2006.
Net income for the third quarter increased 72% to $1.3 million, or
$0.43 per diluted share, from $728,000, or $0.26 per diluted share, in
the year-ago quarter. The growth in net income was the result of
higher sales volume, lower manufacturing costs related to replacing
our California manufacturing plant with a Utah distribution center,
and a slower rate of growth in operating expenses.
Year-to-Date
For the first nine months of fiscal 2007, net sales increased 19%
to $45.2 million compared with $38.1 million in the same period last
year. The majority of the sales growth was attributable to the medical
segment. Medical sales for fiscal 2007 year-to-date increased 18% to
$31.8 million, primarily on the strength in sales of therapeutic
support surfaces that rose 20% compared with the first nine months of
fiscal 2006. In addition, sales of seating products were up 20%,
patient positioners increased 7%, Selan grew by 2% and overlays were
up 1%, compared with the first nine months of 2006.
In the custom products segment, year-to-date sales rose 21% to
$13.2 million compared with $11.0 million through the first nine
months of last year. All of the custom products sales growth came from
the consumer bedding product lines, which grew by 29% during the
period to $10.6 million. The consumer sales growth was led by higher
volume of our new fusion mattress overlay product line.
Sales in the safety catheter segment rose 63% to $116,000 for the
2007 period compared with $71,000 in the first nine months of last
year.
Net income for the first nine months of fiscal 2007 increased 60%
to $3.5 million, or $1.22 per diluted share, compared with $2.2
million, or $0.78 per diluted share, for the year-earlier period. The
increase in year-to-date earnings was due mainly to higher sales
volume in the medical and custom products businesses combined with
lower rates of growth in manufacturing costs and operating expenses.
The balance sheet at the end of the third quarter of fiscal 2007
reflects the changes caused by the $5.00 per share special dividend
and the $0.08 per share regular quarterly dividend paid on June 6,
2007. The total amount of both dividends was $14.1 million, which was
funded by $5.7 million from a new revolving credit facility, and $8.4
million from our cash on hand and cash generated from the sale of
short-term investments.
Outlook for Fiscal 2007
"We expect continued overall sales and earnings growth in the
fourth quarter, although it is unlikely that our rates of growth will
be as high as we have seen through the first three quarters because we
had a strong fourth quarter last fiscal year," stated Mr. Ferguson.
"The medical business should continue to be a solid performer in the
fourth quarter. However, we are likely to see a flattening of sales in
the custom products segment next quarter because we do not expect to
repeat some of the back-to-school promotional sales that we had in the
fourth quarter last year.
"In the safety catheter segment, we expect only modest sales
growth in the fourth quarter. We have a challenge ahead of us in this
part of our business, and we will be carefully evaluating our options
over the next several months to determine how to best maximize our
return on investment in this business unit.
"Overall, we are extremely pleased with our record setting
operating performance in the third quarter and for the year-to-date in
fiscal 2007. With both of our major business units turning in strong
double digit sales growth, we were able to generate very respectable
bottom line earnings growth," 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 loss of a key customer or distributor for the
Company's products, (b) the degree of success achieved in
manufacturing and selling the Secure I.V. safety catheter product
line, (c) the likelihood that the assets associated with Secure I.V.
could become impaired, (d) potential problems arising from having a
sole source contract manufacturer for the Secure I.V. product line,
(e) the inability to achieve anticipated sales volumes of medical or
custom products, (f) the potential for volatile pricing conditions in
the market for polyurethane foam, (g) raw material cost increases, (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)
Three Months Ended
------------------------
June 30, July 1,
2007 2006 % Chg
------------------------ ------
Net sales $15,236,888 $12,548,276 21%
Cost of goods sold 9,948,712 8,539,587 17%
------------------------
Gross profit 5,288,176 4,008,689 32%
34.7% 31.9%
Selling and marketing expenses 2,351,282 2,144,297 10%
Research and development expenses 204,284 141,019 45%
General and administrative expenses 928,585 706,176 31%
------------------------
3,484,151 2,991,492 16%
Operating income 1,804,025 1,017,197 77%
11.8% 8.1%
Other income:
- --------------------------------------
Investment income 71,813 53,661 34%
Royalty income - - n/a
Other 1,039 18,139 -94%
------------------------
Total non-operating income 72,852 71,800 1%
Interest expense 26,377
Income before income taxes 1,850,500 1,088,997 70%
Income taxes 596,000 361,000 65%
------------------------
Net income $ 1,254,500 $ 727,997 72%
8.2% 5.8%
========================
Net income per share of common stock:
Basic $ 0.46 $ 0.27 66%
Diluted 0.43 0.26 65%
Dividends per common share (1) $ 5.080 $ 0.045 11189%
Weighted average shares outstanding
- --------------------------------------
Basic 2,755,114 2,658,076 4%
Diluted 2,894,041 2,777,587 4%
Supplemental Data
- --------------------------------------
Depreciation expense $ 230,315 $ 215,159 7%
Amortization expense 34,200 30,856 11%
Nine Months Ended
------------------------
June 30, July 1,
2007 2006 % Chg
------------------------ -----
Net sales $45,173,795 $38,063,492 19%
Cost of goods sold 30,318,010 26,599,152 14%
------------------------
Gross profit 14,855,785 11,464,340 30%
32.9% 30.1%
Selling and marketing expenses 6,750,853 6,056,966 11%
Research and development expenses 599,921 448,075 34%
General and administrative expenses 2,490,539 2,111,382 18%
------------------------
9,841,313 8,616,423 14%
Operating income 5,014,472 2,847,917 76%
11.1% 7.5%
Other income:
- ---------------------------------------
Investment income 233,732 136,541 71%
Royalty income - 246,627 -100%
Other 11,749 54,917 -79%
------------------------
Total non-operating income 245,481 438,085 -44%
Interest expense 26,377
Income before income taxes 5,233,576 3,286,002 59%
Income taxes 1,778,000 1,131,000 57%
------------------------
Net income $ 3,455,576 $ 2,155,002 60%
7.6% 5.7%
========================
Net income per share of common stock:
Basic $ 1.28 $ 0.81 57%
Diluted 1.22 0.78 56%
Dividends per common share (1) $ 5.220 $ 0.135 3767%
Weighted average shares outstanding
- ---------------------------------------
Basic 2,706,904 2,644,878 2%
Diluted 2,842,179 2,767,266 3%
Supplemental Data
- ---------------------------------------
Depreciation expense $ 675,163 $ 616,436 10%
Amortization expense 103,937 97,482 7%
(1) Dividends for the quarter and nine-month periods ending June 30,
2007 include a special, one-time dividend of $5.00 per share declared
in April 2007.
SPAN-AMERICA MEDICAL SYSTEMS, INC.
Balance Sheets
June 30, Sept. 30,
2007 2006
(Unaudited) (Note)
-------------------------
Assets
Current assets:
Cash and cash equivalents $ 847,584 $ 975,525
Securities available for sale - 5,134,882
Accounts receivable, net of allowances 7,554,611 6,986,794
Inventories 4,838,862 4,353,479
Prepaid expenses and deferred income taxes 1,141,414 735,684
------------ ------------
Total current assets 14,382,471 18,186,364
Property and equipment, net 8,337,852 8,132,057
Cost in excess of fair value of net assets
acquired, net of accumulated amortization 1,924,131 1,924,131
Other assets 2,747,497 2,769,926
------------ ------------
$27,391,951 $31,012,478
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 2,661,282 $ 2,374,357
Accrued and sundry liabilities 2,877,622 2,474,049
------------ ------------
Total current liabilities 5,538,904 4,848,406
Deferred income taxes 815,000 815,000
Deferred compensation 803,332 831,614
Long term debt 5,700,000 -
------------ ------------
Total long term liabilities 7,318,332 1,646,614
Total liabilities 12,857,236 6,495,020
Shareholders' equity
Common stock, no par value, 20,000,000
shares authorized; issued and outstanding
shares 2,774,155 (2007) and 2,660,345
(2006) 1,713,200 1,032,118
Additional paid-in capital 483,345 136,614
Retained earnings 12,338,170 23,352,221
Accumulated other comprehensive loss - (3,495)
------------ ------------
Total shareholders' equity 14,534,715 24,517,458
------------ ------------
$27,391,951 $31,012,478
============ ============
Note: The Balance Sheet at September 30, 2006 has been derived from
the audited financial statements at that date.
CONTACT: Span-America Medical Systems, Inc.
Jim Ferguson, President and Chief Executive Officer
864-288-8877, ext. 6912